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special message
from
Mary Martha Fortney, President and CEO,
May 10, 2007
The U.S. Supreme Court ruled recently in the Watters v. Wachovia N.A. case, a banking preemption case that presents questions about state authority and the enforcement of state laws.
Linda Watters, commissioner of the Michigan Office of Financial and Insurance Services, challenged the interpretation of Office of the Comptroller of the Currency’s (OCC) regulations which shield parent companies and their subsidiaries from state law and the enforcement of state authorities.
The Supreme Court ruled in favor of federal preemption, determining that state-chartered subsidiaries of national banks are exempt from state regulation, licensing and reporting of the states in which the subsidiary operates.
NASCUS is disappointed that the Supreme Court did not recognize Michigan’s state authority to regulate subsidiaries that operate in their state. Protecting state authority is a core principle for NASCUS. We actively defend the preservation of state authority before the U.S. Congress and federal agencies, including the National Credit Union Administration.
Wachovia Mortgage Corp. claimed exemption from a Michigan state law governing mortgage providers in 2003. Thereafter, OFIS notified Wachovia that without registration, they would be unable to conduct business as a mortgage lender in Michigan. Wachovia sued the Michigan agency and they have spent more than three years in litigation.
While the decision may not have any immediate implications for state-chartered credit unions and state credit union regulatory authority, clearly as state-chartered institutions, credit unions, like their state banking counterparts, are invested in ensuring that national chartered institutions and their affiliates comply with appropriate state consumer protection laws and regulations.
Following the decision, Commissioner Watters expressed her disappointment, but emphasized the importance of vigorous consumer protection from both state and federal regulators. The rights of state legislatures to protect its consumers are critical, and NASCUS believes any erosion of state authority bears careful scrutiny and appropriate correction. The decision also raises the question of where does federal regulation end and a state's jurisdiction begin?
It is important to point out that three Supreme Court justices dissented from the majority opinion, stating that the OCC’s regulation threatens the dual banking system and its principle of competitive equality. This principle is reflected in NASCUS’ belief in the criticality of defending state authority and preserving dual chartering. We will continue to monitor any implications of the decision and keep you informed.
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