Wachovia Wins U.S. Ruling on Banks

From Reuters

In a closely watched case addressing federal-state relations, a U.S. appeals court ruled that state banking officials cannot regulate the operating units of national banks.

The 31-page decision Monday by the U.S. Court of Appeals for the 2nd Circuit is a victory for Wachovia Corp., which had sued Connecticut Banking Commissioner John Burke. It will also benefit other national banks such as Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.

The decision is a defeat for the dozens of state bank commissioners and attorneys general, including Connecticut’s Richard Blumenthal and New York’s Eliot Spitzer, who are trying to crack down on potential abuses in lending.

Those regulators supported Connecticut’s attempt to enforce tougher state rules rather than to have to apply more-lenient federal rules, such as the National Bank Act and regulations issued by the Office of the Comptroller of the Currency.


Wachovia spokeswoman Christy Phillips said the bank was “pleased” with the result.

Connecticut’s Burke said: “We’re very disappointed with the result, but we are considering our options.” And Blumenthal said: “The Bush administration has won again in its ongoing effort to strip states of their ability to protect consumers from unethical and unfair lending practices.”

Charlotte, N.C.-based Wachovia had sued Burke in April 2003 over whether states may license and regulate non-bank units, or whether federal rules should apply.

The bank said the reclassification of its Wachovia Mortgage Corp. business as an operating unit of Wachovia Bank, a national bank, rather than as a unit of Wachovia Corp., the parent, meant Wachovia Mortgage need not comply with Connecticut requirements for non-bank mortgage lenders.


Wachovia had relied in part on Office of the Comptroller of the Currency rulings, which give that office exclusive power over national banks and their units.

Judge Chester Straub, writing for a three-judge panel, affirmed Connecticut District Judge Janet Hall’s May 2004 finding that state law should not apply.

He said the National Bank Act frees banks from “state ‘visitorial’ power,” and that Office of the Comptroller regulations “reflect a consistent and well-reasoned approach” to letting national banks exercise their powers.

Straub, however, rejected Hall’s conclusion that Wachovia had an enforceable private “right” to be free from state regulation. He said that would be “inappropriate in light of the complex regulatory framework and the ever-changing nature of the industry and the powers exercised by national banks.”


Spitzer has publicly sparred with Julie Williams, the acting comptroller of the currency, over whether federal agencies are doing enough to protect consumers. But Williams has said Spitzer’s interference might impede her attempts to crack down on discriminatory lending.

Last month, a New York federal judge handed Spitzer a victory when he refused a request by a bank trade group, backed by the Office of the Comptroller of the Currency, to stop the attorney general from investigating large banks’ lending practices to minorities.