US State Attorneys General Seek Use of Federal Cudgel Against Banks

The attorneys general of 20 states and territories, led by New York Attorney General Letitia James, recently sent letters to the heads of the US Consumer Financial Protection Bureau (CFPB) and US Office of the Comptroller of the Currency (OCC) requesting that the agencies partner with the states and “take appropriate action” to clarify that federally chartered institutions must cooperate with state attorneys’ general information requests, and that their failure to do so is unsafe, unsound, and may give rise to unfair or abusive acts and practices.

The letters to Director Rohit Chopra and Acting Comptroller Michael J. Hsu seek to rework the framework established by the US Supreme Court’s watershed decision in Cuomo v. Clearing House Ass’n, LLC, 557 US 519 (2009). There, the Court distinguished a state sovereign’s authority to enforce its consumer protection laws against national banks through litigation from the exercise of “visitorial” safety and soundness authority, which, in the case of a national bank, is committed to the OCC and other federal banking regulators under the National Bank Act (12 USC § 484).

Following the decision in Clearing House, the passage of the Dodd-Frank Act arguably obscured the authority of state attorneys general to investigate federally chartered institutions outside of a judicial setting. This is because the Dodd-Frank Act merely established the CFPB’s authority as a floor, and not a ceiling, for preemption purposes. See 12 USC § 5551(a)(2).

That being said, OCC Bulletin 2020-43 affirmed the core distinction recognized in Clearing House, and courts have continued to apply the Clearing House standard in the rare instances it has been litigated. In practice, national banks have, in the nearly 15 years since Clearing House, engaged in a careful balance when faced with state attorney general investigations, considering the risk that the agency will publicly file an enforcement action and seek discovery and the burden associated with voluntary compliance with an investigative demand.

Despite this history, in their December 6 letters the state attorneys general now assert that, in recent years, national banks have “effectively stonewalled State Attorney General investigations” by asserting preemption under the National Bank Act.

According to the attorneys general, for a variety of reasons—including that states are closer to consumers, modern banking trends have expanded the footprint of state-chartered banks, and the sole forum available to states is a courtroom—it would be more efficient and effective for the banking system and national banks to “renew the once strong partnership between state and federal banking regulation.” CFPB Letter at 6.

Such a partnership would provide a formal mechanism for the CFPB to initiate parallel investigations in cases in which a bank refuses to cooperate with a state attorneys general, and for the CFPB to use its existing authority to disclose a bank’s responses to that state attorney general. On the OCC side, the attorneys general request in their letter that the agency issue Supervisory Guidance “reiterating” its expectation that regulated banks will respond to information requests issued by state attorneys general.

Despite the OCC’s historical skepticism of state attorney general investigations, we expect the two federal agency heads’ forthcoming responses to align with the CFPB’s long-standing and oft-repeated commitments to working alongside state attorneys general.

Here, the timing of these letters is especially significant, as federal and state enforcement agencies have recently worked together on what they term “junk fee” prosecutions.

If the patchwork proposed by the states for regulating junk fees is adopted by the CFPB and OCC, national banks could find themselves with conflicting demands from various state and federal agencies, all of whom might agree on a general framework for “junk fees,” but whom also might disagree on specific rules and requirements in this fast-developing space in which the devil is in the details, as we have discussed in our recent comments on the issue.

The signatories to the December 6 letter include New York, Arizona, California, Colorado, Connecticut, the District of Columbia, Hawaii, Illinois, the Commonwealth of the Northern Mariana Islands, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and the US Virgin Islands.