OCC, addressing proliferation of COVID-19 relief programs, emphasizes federal preemption of state laws for banks

A bulletin that reminds banks that federal laws and rules governing their activities, including any relief they provide customers affected by the coronavirus (COVID-19) pandemic, generally preempt state laws was issued Wednesday by the Office of the Comptroller of the Currency (OCC).

The bulletin, which provides a list of the types of activities and relief that could be subject to conflicting federal and state requirements, reinforces principles of federal preemption and closes with a statement encouraging states and localities to expressly exempt federally chartered banks from their laws and inviting them to “reach out to the OCC with any concerns.”

The OCC, in the bulletin, pointed out that many state and local authorities have taken, or are considering taking, legislative, executive, or other action to respond to the economic disruptions caused by the spread of COVID-19. It notes that while the specifics of each state or local action vary, many address foreclosure and repossession moratoriums, loan forbearance, and limitations on the interest and fees banks may charge. Meanwhile, Congress “also recognized the importance of these efforts by including specific provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to address forbearance on federally backed mortgage loans and moratoriums on related foreclosures,” it noted.

“While these state and local actions are well-intended, the OCC is concerned that the proliferation of a multitude of competing requirements will conflict with banks’ ability to operate effectively and efficiently, potentially increasing the risk to banks’ safety and soundness and ultimately harming consumers,” the OCC stated.

A couple other key points, provided in brief below, include:

  • Federal law preempts state and local laws that impermissibly conflict with banks’ exercise of certain federally authorized powers. OCC regulations provide examples of the types of state laws that do not apply to banks’ lending and deposit-taking activities. These include state law limitations on: terms of credit, such as the schedule for repayment and interest, amortization of loans, balance, payments due, minimum payments, and term to maturity; disbursements and repayments; and processing, origination, and servicing mortgages. OCC regulations also address interest and non-interest fees.
  • OCC regulations preempt state laws that conflict with the real estate lending powers of banks and specifically preempt state laws that interfere with banks’ ability to make mortgage loans secured by real estate. State action that limits banks’ ability to foreclose on a defaulted loan and take possession of collateral, beyond what is provided for in the CARES Act, would interfere with banks’ powers to make secured mortgage loans.

The agency’s bulletin also reiterated (as stated in Bulletin 2020-43) that the OCC has exclusive visitorial authority with respect to banks. “Requirements to report to state and local officials generally run afoul of this exclusive authority,” it stated.

OCC Bulletin 2020-62

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