August 7, 2003


On July 31, 2003 the Office of the Comptroller of the Currency (OCC), in response to a request by National City Bank and its operating subsidiaries, issued a preemption determination and order concluding that the Georgia Fair Lending Act (GFLA) does not apply to national banks or their operating subsidiaries. The OCC stated that its preemption determination and order is supported by the following federal authority:

  • National banks’ authority to engage in real estate lending activities derives exclusively from federal law;
  • The federal statute that broadly authorizes national banks’ real estate lending activities, 12 U.S.C. § 371, precludes application of many provisions of the GFLA to national banks as the statute specifically gives the OCC authority to determine the restrictions and requirements that apply to national banks’ real estate lending activities;
  • National banks’ real estate lending standards are already subject to a comprehensive federal regulatory framework that addresses the types of abusive and predatory practices that the GFLA seeks to prohibit. The OCC has issued detailed guidance applicable to national banks’ mortgage originations, use of mortgage brokers and purchases of loans from others;
  • The OCC regulations implementing 12 U.S.C. § 371 currently provide that certain types of state laws do not apply to national banks such as terms of repayment and maturity;
  • Section 371 and OCC regulations preempt the GFLA provisions that, pursuant to the Barnett standards and lower federal court case law applying those standard, impermissibly obstruct, alter or condition a national bank’s exercise of its federally authorized real estate lending powers;
  • Some provisions of the GFLA purport to limit the interest a national bank may charge for certain types of loans, but as the Supreme Court has affirmed, the rate of interest that is permissible for national banks is determined exclusively by federal law, under 12 U.S.C. § 85. Section 85 permits national banks to charge the most favorable rate permitted by the laws of the state in which the bank is located, regardless of where the borrower is located.

The GFLA generally restricts the ability of lenders to charge certain fees and engage in certain practices for three categories of loans: “home loans,” “covered home loans” and “high‑cost home loans.” These categories of loans are defined with respect to the annual percentage rate and the amount of points and fees charged. Under the GFLA, all “home loans” are subject to certain restrictions on the terms of credit and loan‑related fees, including prohibitions on the financing of credit insurance, debt cancellation or suspension coverage and limitations on late fees and payoff statement fees.

The OCC’s conclusion that state law restrictions on mortgage lending are preempted as to national banks and their operating subsidiaries is similar to the conclusion reached by the Office of Thrift Supervision with regard to federal savings banks and their operating subsidiaries with regard to Georgia, New Jersey and New York “predatory” lending laws. In the order the OCC expressly declined to consider the question of occupation of the entire field of state real estate lending laws and indicated that the issue would be considered in the context of the proposed rule issued the same day (see below), which invited comment on the potential adoption of a “field preemption” analysis.

In announcing the OCC’s Order (above) and Proposal (below), Comptroller Hawke criticized state predatory lending laws, stating:

There are clearly [imposed] burdens and unintended consequences that spring from the oberbroad reach of these laws . . . [These laws] introduce new standards for subprime lending that are untested, sometimes vague, often complex, and, in many cases, different from established and well‑understood Federal requirements. They also create new potential liabilities and penalties for any lender that missteps in its efforts to comply with those new standards and restrictions.

He further observed:

As a practical matter, these laws materially increase a bank’s costs and compliance risks in connection with subprime lending to the point that banks have and will conclude that they simply are unable to effectively cover these increased costs and risks. Accordingly, a growing body of evidence indicates that in response to such laws, banks are likely to reduce their product offerings to avoid subprime mortgage lending, in order to concentrate on making loans for which they can receive acceptable compensation for the risks they undertake. The practical result of these laws, therefore, is to obstruct, or for practical purposes, prevent, national banks and their subsidiaries from making certain types of real estate loans, which causes an overall reduction in credit available to subprime borrowers. This means that non‑predatory, risk‑priced credit will become more limited, or unavailable, to creditworthy subprime borrowers.

²Mike Tomkies and Elizabeth Anstaett


On July 31, 2003 the Office of the Comptroller of the Currency (OCC) issued a proposed new regulation to clarify the types of state laws applicable to national banks. The proposed regulations amend 12 C.F.R. Parts 7 and 34 and identify types of state laws that are preempted, as well as types of state laws that generally are not preempted, in the context of national bank lending, deposit‑taking and other authorized activities. Part 34 deals with real estate lending and Part 7 governs non‑real estate lending, deposit‑taking and other national bank activities.

Part 34

12 U.S.C. § 371 provides a broad grant of authority for national banks to engage in real estate lending. Pursuant to OCC authority under Section 371, the proposal amends 12 C.F.R. § 34.4(a) and (b) to provide a more complete statement of the types of state law restrictions and requirements that do, and do not, apply to real estate lending activities of national banks. State laws that are preempted include licensing laws, laws that address the terms of credit, permissible rates of interest, escrow accounts and disclosure and advertising. The proposal states that other types of state laws that obstruct or condition the exercise of national banks’ real estate lending powers may be identified and will be addressed on a case‑by‑case basis. The proposal lists examples of state laws that would not be preempted for national banks to the extent that they only incidentally affect real estate lending, including laws that generally pertain to contracts, debt collection, acquisition and transfer of property, taxation, zoning, crimes, torts and homestead rights. The proposal states that other laws that have only an incidental effect on national banks’ real estate lending powers or are otherwise consistent with national banks’ authority to engage in real estate lending would not be preempted.

Part 7

The proposal adds three new sections to Part 7, Section 7.4007 regarding deposit‑taking activities, Section 7.4008 regarding non‑real estate lending activities and Section 7.4009 regarding other authorized national bank activities. The OCC indicated that the proposed rules were consistent with the purpose of establishing a national banking system subject to uniform standards and safe and sound exercise by national banks of their federal powers.

Regarding lending, the proposed regulation contains a list of the types of state laws preempted that is the same as that contained in the proposed regulation under Part 34. Under all three parts of Section 7 the list of the types of state laws not preempted to the extent that they only incidentally affect real estate lending are the same as that provided in Section 34.

The list of preempted and generally not preempted state laws are very similar to those found in the Office of Thrift Supervision Regulation 12 C.F.R.S. 560.2. Thus, the OCC appears to interpret existing case law and the history of the national bank act to provide national banks with similar preemption authority to that available to federal savings banks.

The OCC’s proposal acknowledges the applicability of “some” state laws, characterizing permissible state laws as those that “do not actually regulate the manner and content of the business of banking authorized for national banks under Federal law, but rather establish the legal infrastructure that surrounds and supports the conduct of that business. The OCC’s “alter, condition or obstruct” and “have only an incidental effect” standards stand in contrast to the standard of “prevent or significantly interfere with” articulated by the Supreme Court in Barnett. The brevity of the rule also leaves much of its true scope open to conjecture despite a few clarifying footnotes. In its discussion of the rationale for the proposal, the OCC rejected commenters’ suggestion that preemption analysis begins with a presumption against preemption, asserting that the presumption inapplicable in national bank context where the federal government has had a history of significant federal presence.

Whether the OCC’s bold formulation will withstand judicial and political scrutiny remains to be seen. State regulators have already suggested that they may seek to challenge the rule in court if the OCC does not adequately take their views into consideration during the 60‑day comment period.

Comments are due October 6, 2003.

Mike Tomkies and Elizabeth Anstaett


On August 5, the Georgia Department of Banking and Finance issued a Declaratory Ruling in response to the OCC’s preemption determination (discussed above). See The Department concluded that as federal law has been determined by the authorized federal agency to preempt the applicability of the Georgia Fair Lending Act (GAFLA) for national banks and their operating subsidiaries, then pursuant to Section 7-6A-12 of the GFLA, the GFLA will not apply to state-chartered banks and their subsidiaries. By the terms of the GFLA, this exclusion extends to state banks regardless of their state of charter. The Department cautioned, however, that should any part of the OCC’s preemption determination be overturned, clarified or revised, then state banks would become subject to those provisions to which national banks are subject. The GFLA remains in effect for finance companies, mortgage brokers, mortgage bankers and others who make home loans in Georgia.

The Department’s ruling was supported by an opinion from the Georgia Attorney General issued on August 4 concluding that the OCC had the requisite authority to preempt the GFLA. See Agenda PDFs/2015/HR Professionals Institute.pdf. The Attorney General reviewed preemption cases since Barnett, including the Sorrell case in Georgia, observing that “it appears . . . as long as the OCC’s legal conclusions are related to the banking activities of national banks the decision will be difficult to challenge successfully.”

The effective date of the preemption for state chartered banks and their subsidiaries under the GFLA is March 7, 2003.

² Mike Tomkies and Elizabeth Anstaett