Key test of state power for Supreme Court

"In the absence of Congressional authorization, the OCC has no independent power to preempt the validly enacted legislation of a sovereign state," writes Michigan Solicitor General Thomas Casey in his brief to the court.

Lawyers for Wachovia disagree. "These rules are within the OCC's delegated rulemaking authority," says Robert Long in his brief. Any protections of state power under the 10th Amendment are abrogated by Congress's constitutional power under the commerce clause to regulate national banking, Mr. Long adds.

The Bush administration is backing Wachovia and the OCC. Federal agencies have the power to issue regulations that preempt state laws even when Congress has not specifically authorized such preemption, says Solicitor General Paul Clement in his brief.

The case is being closely followed by bankers as well as other nationwide businesses that face a patchwork quilt of differing state regulations. Federal preemption offers a significantly more efficient means of conducting business nationwide.

"For some of us, we're not even sure how the 10th Amendment ended up in this case," says Robin Conrad of the National Chamber Litigation Center of the US Chamber of Commerce. "We have two new members of the court, and they have yet to show their cards in cases involving federal preemption," she says. "We see this as a pretty clear case that uniform national law is of primary importance."

Also watching the case are attorneys general from the nation's 49 other states, the District of Columbia, and Puerto Rico, who are urging the justices to uphold Michigan's power to regulate companies doing business within its own borders.

"If [the OCC rule] is allowed to stand, it would render states powerless to protect their residents from abusive and discriminatory consumer practices by state- created entities that are operating subsidiaries of national banks," writes Caitlin Halligan, New York solicitor general, in a friend-of-the-court brief filed by the states.

Consumer protection is an area traditionally regulated by the states, Mr. Casey writes in the Michigan brief. In contrast, he says, the primary mission of the OCC is to ensure the safety and soundness of the national banking system.

There are 40 full-time OCC staff members in a central office to investigate consumer complaints against national banks and their subsidiaries, Casey says. By contrast, there are nearly 700 full-time examiners and lawyers at the state level who handle consumer complaints, he says.

Lawyers for National City Bank offer different numbers in their friend-of-the-court brief. Of OCC's 1,800 examiners, they say, 300 spend all or part of their time enforcing bank compliance with consumer-protection laws.

The OCC receives 70,000 consumer complaints a year, the National City Bank brief says, and in 2004 returned $4 million in wrongful fees and charges to complaining customers.

The brief says that state and local consumer-protection efforts "provide no real benefit to consumers." It adds that federal examiners located on-site in large national banks effectively monitor not only the financial soundness of the bank's operations but also compliance with federal consumer-protection laws.

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