The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 (July 21, 2010) (Dodd-Frank Act), creates a new roadmap for navigating the areas where federal and state consumer financial laws intersect, but unfortunately provides little practical guidance for banks in terms of short-term and long-term compliance strategies. See our Alert dated July 16, 2010. There is some hope for future clarification in that the Dodd-Frank Act requires the adoption of various implementing regulations and review of existing regulations and appears to invite legal challenges to past preemption determinations. Prior to the adoption of new implementing regulations and the required review of existing regulations, however, banks face uncertainty as to how to conduct business and whether compliance with state laws is required. Some key compliance considerations are discussed below.

Interest Preemption

The Dodd-Frank Act expressly preserves national bank powers related to charging interest. Thus, national banks may continue to rely on interest rate preemption under Section 85 of the National Bank Act. However, Section 85 does not define interest; the current understanding of interest is based on the Office of the Comptroller of the Currency regulation at Section 7.4001 of the Code of Federal Regulations, Title 12, and supporting case law. It is uncertain whether the OCC regulation and supporting case law are intended to remain valid under the Dodd-Frank Act. Interest preemption for federal savings banks and federally insured institutions is not addressed in the Dodd-Frank Act. Thus, banks must rely on their best legal judgment of the current state of the law in light of the provisions of the Dodd-Frank Act.

Field Preemption

The Dodd-Frank Act expressly eliminates field preemption for national banks and federal savings banks. It follows that such banks can no longer rely upon regulations that either expressly or by implication provide for field preemption such as regulations found at Sections 560.2, 7.4008 and 34.4. As many past decisions to not comply with state law are based on these regulations, it will be necessary to reanalyze these decisions. Additionally, what is the impact of the Dodd-Frank Act on other regulations such as Section 560.33 regarding late charges and Section 560.34 regarding prepayment penalties?

New Standards

The Dodd-Frank Act provides that state “consumer financial laws” are preempted, only if:

(1) Application of a state consumer financial law would have a discriminatory effect on national banks, in comparison with the effect of the law on a bank chartered by that state;

(2) In accordance with legal standard for preemption in Barnett Bank of Marion County, 517 U.S. 25 (1996), the state consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers; or

(3) The state consumer financial law is preempted by a provision of federal law other than Title X of the Dodd-Frank Act.

How courts and regulators will interpret and apply these new standards remains to be seen. Thus, banks must decide how to conduct business before the full extent of the changes brought by the Dodd-Frank Act are known for certain.


Given the uncertain state of preemption, banks may want to reanalyze past decisions regarding state law compliance. Banks may choose to attempt to conduct their own “prevent or significantly interfere” analysis. Banks should consider alternative sources of preemption authority such as the Truth in Lending Act and the Fair Credit Reporting Act.

The result is likely to be increased attention to state law compliance. This is wise in light of the Dodd-Frank Act’s express preservation of enforcement powers of state attorneys general to bring civil actions against national banks and federal savings banks to enforce applicable law.

We will closely monitor regulations issued under the Dodd-Frank Act preemption standards as well as preemption determinations and case law and send Alerts on those we find relevant to banks’ compliance concerns. U

  • Judy Scheiderer and Elizabeth Anstaett