Supreme Court Decides Watters v. Wachovia

by Deepak Gupta

SCOTUSblog is reporting that the Supreme Court has ruled that federal law, not state law, controls the regulation of mortgage lending activity by national banks, even when that is carried on by an operating subsidiary of the bank. The vote was 5-3.  Ginsburg, joined by Kennedy, Souter, Breyer, and Alito, announced the opinion of the Court.  Stevens, joined by Roberts and Scalia, dissented.  Thomas took no part in the decision.  The opinions are available here.

Announcing the ruling in Watters v. Wachovia Bank (05-1342), Justice Ruth Bader Ginsburg said: "Where a national bank engages in real estate lending through an operating subsidiary, the subsidiary is subject only to the same terms and conditions as those that would govern the bank itself" -- that is, federal regulation under the National Bank Act. ""Though state law, in this case North Carolina law, governs matters pertaining to an operating subsidiary's incorporation, state regulators cannot interfere with the 'business of banking' by subjecting national banks or their [federal]-licensed subsidiaries to rival oversight regimes."   

Much of the debate and briefing over this case concerned the interaction between preemption and the power of federal administrative agencies--a dicey and dangerous can of worms. Did Congress confer authority on the agency to preempt state law? Can Congress do that? Should the courts defer to the agency under these circumstances?    The Court avoided that can of worms today:

Watters disputes the authority of OCC to promulgate this regulation and contends that, because preemption is a legal question for determination by courts, [the regulation] should attract no deference. . . . This argument is beside the point, for under our interpretation of the statute, the level of deference owed to the regulation is an academic question. Section 7.4006 merely clarifies and confirms what the NBA already conveys: A national bank has the power to engage in real estate lending through an operating subsidiary, subject to the same terms and conditions that govern the national bank itself; that power cannot be significantly impaired or impeded by state law.

Comments

[Bill Ridge]

I heard some thing about Watters v. Wachovia impact that deals with LO's, Mortgage Brokers, etc. I am a salesman, not an attorney and cant understand what this means. Is there somebody out there in attorney land that can explain if this court action impacts independent LO's and Mortgage Brokers. B

[Reuben Nieves]

I would like to know if the 10th Amendment allows the "People" or the "State" the power to invoke a National Initiative or National Referendum? Also, if were have to have a declaratory judgement in a federal court to determine this.