High Court Rules In Banking Case

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ROBERT SIEGEL, host:

One of today's Supreme Court rulings came in a case that pitted the attorney general of New York state on one side and a group of big national banks and a federal bank regulator, the Comptroller of the Currency, on the other. The question posed by this case: Can a state attorney general demand information from federally regulated banks? And the answer is, yes, but only with a subpoena obtained through the courts.

Arthur Wilmarth, professor of law at the George Washington University Law School here in Washington joins us in the studio. Welcome. First, the details of this case. There were letters that the attorney general of New York state, then Eliot Spitzer, sent to the banks to find out if they were complying with state fair lending laws. Who had a problem with that?

Professor ARTHUR WILMARTH (George Washington University Law School): The banks did, and so did the OCC.

SIEGEL: The Comptroller of the Currency.

Prof. WILMARTH: The Comptroller of the Currency, yes. Because the banks and the comptroller said, we acknowledge that this state law applies to the banks and they have to follow it, but only the comptroller gets to enforce that law. The state may not enforce its own law.

SIEGEL: So they challenged this in court.

Prof. WILMARTH: Right. They proceeded to district court and the district court gave them an injunction, not only against the attorney general coming in through administrative subpoena, but also enjoined the attorney general from going to court to enforce any kind of subpoena. The case then went up to the Second Circuit Court of Appeals, which upheld the district court by a two to one vote and then came to the Supreme Court.

SIEGEL: So, by the time this reached the Supreme Court, Eliot Spitzer was no longer attorney general - it's Cuomo, Andrew Cuomo versus the Clearing House Association, the big banks - and what did the court say?

Prof. WILMARTH: The court said two things. First, it said a state official, a state attorney general may not, by his own authority, require national banks to hand over information to him. He may not do so administratively. But the court said the state official has the right to go to court to enforce the state law that does apply to national banks, has not been preempted by Congress.

SIEGEL: And the decision was written by Justice Scalia with unusual company, for those of us who don't follow the court that closely.

Prof. WILMARTH: Yes. The four so-called liberals in the court, right, joined Justice Scalia, perhaps not for all the same reasons, but they all agreed that the agency had acted beyond its authority.

SIEGEL: Of course, the justices aren't supposed to be mindful of things like the administration's proposals to overhaul bank regulation in the country, but it would be impossible to hear a federal bank regulator like the comptroller arguing in court, we can do the job. We don't need any state government looking over our shoulder, in the particular climate right now.

Prof. WILMARTH: Well, I think, obviously, that was what the OCC, the comptroller had said. But I think you're right, the comptroller's credibility had been very significantly weakened by the subprime financial crisis and the fact that this case actually arose out of subprime mortgage lending by the major banks.

SIEGEL: Beyond the obviously high stakes arena of National Clearing House banks, does this decision by Justice Scalia have much to say about other issues of federalism and the balance between the state and Washington?

Prof. WILMARTH: I think it does. I think that although one could say that the decision is in some ways more implicit than explicit on this point, I think the court is sending a message to agencies quite clearly saying that you may not look at ambiguous federal statutes and everyone admits the federal statute here was somewhat ambiguous as to what the term visitorial powers meant…

SIEGEL: The visitorial powers of the federal government, the Comptroller to...

Prof. WILMARTH: Over national banks.

SIEGEL: …to examine banks.

Prof. WILMARTH: And the comptroller took that term to mean, I can exclude all state enforcement of any type, and so therefore attack a very core state function, which is to enforce your own laws. I think that the court, the majority sent a message to agencies saying, you may not read ambiguous statutory language to overcome traditional core state functions. You need to really have a much more explicit command from Congress saying, no, we really do intend that these state functions be taken away.

SIEGEL: Professor Wilmarth, thank you very much for talking with us.

Prof. WILMARTH: It's my pleasure. Thank you.

SIEGEL: That's Arthur Wilmarth, a professor of law at the George Washington University Law School.

BLOCK: The state of the Pentagon's don't-ask-don't-tell policy. That story's just ahead on ALL THINGS CONSIDERED.

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