Banking and Finance Law Daily Wrap Up, PREEMPTION—Rescinding national bank preemption rules would undermine dual banking system, ABA asserts, (May 29, 2025)

By Caron Carlson

Warning that the strength of the nation’s dual banking system is at stake, the bankers group told the Office of the Comptroller of the Currency that it should reject a deregulation request from state regulators.

The American Bankers Association (ABA) urged federal regulators not to rescind National Bank Act preemption regulations, cautioning that to do so would weaken the nation’s dual banking system. The warning comes in response to a request made earlier this month by the Conference of State Bank Supervisors (CSBS), which asserted that rescinding the national banking preemption regulations would further the goals of Executive Orders 142193 and 14267.

In a May 28, 2025, letter to Acting Comptroller of the Currency Rodney Hood, the ABA said the national banking preemption regulations articulate core standards that have roots that “stretch not only through more than a century and a half of clear legislation and consistent case law but all the way back to our nation’s Constitution.” The association said that the CSBS is essentially arguing that state regulators and state legislatures should be able to undermine – or even overrule – national bank policy while the federal government is working on a regulatory rebalancing initiative.

The CSBS deregulation request. The CSBS had made its request in a May 8, 2025, letter to the OCC as part of a larger response to a request for information by the Office of Management and Budget. The CSBS argued that the national banking preemption regulations are unlawful, inconsistent with Supreme Court rulings, contrary to the public interest, and inconsistent with the National Bank Act’s preemption standard and process. The regulations shield national banks from state consumer financial laws that apply to similarly situated state-chartered banks, making them anti-competitive, the CSBS said. After rescinding the regulations, the OCC should swiftly propose new rules to implement the National Bank Act’s preemption standard and process, the CSBS urged (see Banking and Finance Law Daily, May 13, 2025).

Protection from patchwork of laws. In its May 28 response, the ABA said that a national banking system with uniform rules providing regulatory clarity and operational efficiencies is necessary for banks that want to operate in more than one state. Congress, in 1863, gave national banks protection from the dangers of a patchwork of state laws and harmful state intervention by including the preemption provisions of the National Bank Act, the association said. The performance of thousands of state-chartered banks belies the assertion that state-chartered banks cannot compete.

“If, as CSBS claims, our nation’s dual banking system disadvantaged state-chartered banks and, thereby, harmfully stifled competition for bank products and services, would the vast majority of American banks be state-chartered? Clearly not,” the ABA said.

Additional Background. In its May 8, 2025, letter, the CSBS told the OCC that the regulations ignored the intent of Congress to rein in broad preemption of state consumer financial laws in the wake of the financial crisis.

“In particular, wholesale preemption of state mortgage laws had been a key contributor to the mortgage crisis that morphed into a global financial crisis,” the CSBS said. Congress intended to narrow the standard used to preempt a state law only if the law prevents or significantly interferes with the national bank’s exercise of its powers. However, rather than establishing a process to consider preemption on a case-by-case basis subject to an on-the-record substantial evidence requirement, the OCC simply preserved the status quo, the CSBS said.

The preemption regulations give national banks and federal thrifts a competitive advantage over similarly situated state-chartered banks and state-licensed nonbank firms, the CSBS further argued. By protecting national banks from broad categories of state consumer financial laws, the OCC has sought to attract more national bank charters at the expense of state bank charters, the CSBS said.

Companies: American Bankers Association; Conference of State Bank Supervisors

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