Sheppard Mullin Financial Institutions Law Blog

Does the National Bank Act and OCC regulations preempt the authority of the California Commission of Corporations to audit an operating subsidiary of a national bank?

Yes, according to the Ninth Circuit Court of Appeals in Wells Fargo Bank N.A. v. Boutris, 05 C.D.O.S. 7154 (Aug. 12, 2005).

The California Commissioner of Corporations demanded that an operating subsidiary of a national bank conduct an audit to identify all residential mortgage loans that charged per diem interest in violation of California law. The national bank filed suit, seeking declaratory and injunctive relief, arguing that the laws from which such authority derived were preempted by the National Bank Act and regulations promulgated by the OCC. The district court granted the motion, holding that federal law preempted the commissioner's exercise of investigative and licensing authority over "operating subsidiaries" of national banks, as well as California's per diem loan-interest statute.

The Ninth Circuit affirmed. Construing section 54 of the Bank Act, 12 U.S.C. § 484, and regulations OCC regulation 12 C.F.R. § 7.4006, the court held the commissioner was preempted from ordering regulatory authorities from national bank operating subsidiaries. It also held that California's real estate lending licensing requirements as applied to operating subsidiaries of national banks were "field-preempted" by OCC regulation 12 C.F.R. § 5.34: "A state's attempt to require advanced licensing before an operating subsidiary may engage in the activities covered by the Bank Act, including real estate lending, runs headlong into the OCC's finely nuanced licensing scheme."

Click here to view a copy of the opinion.