Client: National banking trade associations
Representation: Pacific Capital Bank, N.A. v. Connecticut
Industry: Financial Services
Region: North America
Pacific Capital Bank, N.A. v. Connecticut involved preemption of state law as applied to agents of a federally chartered financial institution. No. 06-4149-cv, 2008 U.S. App. LEXIS 19491 (2nd Cir. Sept. 12, 2008). The case was brought by Pacific Capital Bank, N.A., a national bank located in California, to challenge the application to its loans of a Connecticut statute that limits the amount of interest that may be charged on RALs. The statute purported to apply this limit to national banks and prohibited "facilitators" of RAL lending, including tax preparers such as Jackson Hewitt and H&R Block, from servicing RALs at interest rates above the statutory maximum. Pacific, together with Arnold & Porter on behalf of the American Bankers Association and the other major bank industry trade associations, argued that the Connecticut statute was preempted by the NBA and the regulations and opinions of the OCC, which, like those of the OTS with respect to federal thrifts, authorize national banks to conduct their lending activities by using non-bank third parties. The Second Circuit, affirming the ruling of the District Court for the District of Connecticut, agreed with Pacific, rejecting the State’s argument that the NBA cannot preempt a state statute that regulates only non-banks (other than operating subsidiaries). Consistent with the Supreme Court’s analysis in Watters and the Sixth Circuit’s ruling in Reardon, the Second Circuit stated that “if a state statute subjects non-bank entities to punishment for acting as agents for national banks with respect to a particular NBA-authorized activity, the state statute does not escape preemption on the theory that, on its face, it regulates only non-bank entities. Notably, the Second Circuit did not decide the case based on a straightforward preemption analysis but, rather, by reaching a conclusion concerning a potential conflict between federal and state law and then construing the state law to avoid such a conflict.