Toward a basal Tenth Amendment: a riposte to national bank preemption of state consumer protection laws.

AuthorFisher, Keith R.

Recent regulations promulgated by the Office of the Comptroller of the Currency assert a sweeping authority to preempt a broad array of state laws, including consumer protection laws, applicable not only to national banks but also to their state-chartered operating subsidiaries. The regulations threaten both to disrupt state efforts to combat predatory lending and other abusive practices and to interfere with a state's sovereign authority over corporations chartered under its laws. Yet federal courts reviewing these initiatives have failed to devote any substantial analysis to challenges based on the Tenth Amendment. That failure is likely a consequence of the lack of any substantial doctrinal base in Tenth Amendment jurisprudence. This Article first explores the legal and policy implications of the preemption program and identifies the consumer protection interests at stake and the States' role in vindicating those interests. It then considers the importance of judicial review to the Framers' federalism design and endeavors to distill from their commentary and debates some substantive content for the Tenth Amendment that federal courts could credibly enforce. The Article concludes by suggesting a template for doctrinal analysis of Tenth Amendment issues arising from federal administrative action.

INTRODUCTION

After a promising start in life with the pedigree of the original Bill of Rights, the Tenth Amendment (1) fell into disrepute because of its role in the legal apparatus of racial discrimination. (2) It has since been alternatively dismissed as constitutional surplusage--a mere "truism" (3)--and honored as an "independent font of sovereignty." (4) In its periodic bouts with the commerce power, the Tenth Amendment has escaped precise or consistent analysis of its substantive content. It has been characterized as a "flimsy aid in withstanding federal power," (5) a "limit[] upon the power of Congress to override state sovereignty, even when exercising its otherwise plenary powers to tax or to regulate commerce," (6) a "thinly veiled rationalization" for judicial second-guessing of Congress's policy choices, (7) a "tautology" (that is, any powers reserved to the States are self-evidently a limitation on Congress's Article I enumerated powers), (8) a "misguided doctrine," (9) the basis for a "counter insurgency," (10) playing an "integral role ... in our constitutional theory," (11) and a "constitutional frog that turned into a prince ... [and] back into a frog." (12)

Federal intervention into the domain of commercial activities traditionally regulated by the States poses "perhaps our oldest question of constitutional law," (13) namely, the appropriate spheres of the sovereign authority of the federal and state governments and the proper relationship between them under our constitutional scheme. It also exposes the uneasy tension between the Commerce Clause (14) and the Tenth Amendment that has persisted for over 200 years of constitutional jurisprudence. Apart from the superficial clarity provided by cases such as New York v. United States (15) and Printz v. United States, (16) which bar congressional exercise of the commerce power in a manner that would "commandeer" state legislatures or executive branch officials, Tenth Amendment jurisprudence remains chaotic, conflicting, and rather rudimentary. It is astonishing that the meaning of a single declarative sentence enshrined in the Bill of Rights has evaded judicial construction establishing, at a minimum, some bedrock level of state sovereignty upon which the federal government cannot impinge.

In a previous decision, also named New York v. United States, the Court upheld the constitutionality of federal taxes on New York's sale of mineral waters from a spa in Saratoga Springs notwithstanding the state's claim that it was exercising an "essential government function." (17) That line of argument would not come to fruition until thirty years later in National League of Cities v. Usery, (18) a decision widely regarded as part of the agenda of a "conservative" jurist, then-Associate Justice William H. Rehnquist. (19) Yet it was Justice William O. Douglas, a liberal progressive, whose strident dissent in New York decried the "power to tax is the power to destroy" effect of the majority opinion, like McCulloch v. Maryland (20) in reverse, and dismissed the notion that a process-based approach (21) could ever be adequate to vindicate Tenth Amendment concerns:

The notion that the sovereign position of the States must find its protection in the will of a transient majority of Congress is foreign to and a negation of our constitutional system.... ... The Constitution is a compact between sovereigns. The power of one sovereign to tax another is an innovation so startling as to require explicit authority if it is to be allowed. If the power of the federal government to tax the States is conceded, the reserved power of the States guaranteed by the Tenth Amendment does not give them the independence which they have always been assumed to have. They are relegated to a more servile status.... They must pay the federal government for the privilege of exercising the powers of sovereignty guaranteed them by the Constitution. (22) The particular federal intervention providing the impetus for this Article is the assertion by the Office of the Comptroller of the Currency (OCC) of sweeping authority to preempt a broad array of state laws of the sort that have for 150 years applied to the activities of national banks and coexisted with the provisions of the National Bank Act. (23) Early in 2004, OCC, embroidering rather liberally upon a concept from the Supreme Court's decision in Barnett Banks of Marion County v. Nelson, (24) promulgated regulations purporting to preempt all state laws that "obstruct, impair, or condition a national bank's ability to fully exercise" its federally granted powers. (25) Even more controversially, the preemption applies whether a national bank exercises such powers directly or through one or more state-chartered operating subsidiaries. (26)

At the same time, OCC has promulgated regulations giving an expansive interpretation to its visitorial powers under 12 U.S.C. [section] 484(a). (27) Pursuant to that interpretation, OCC claims exclusive and discretionary authority to investigate potential violations of federal or state law not only by national banks but also by their state-chartered operating subsidiaries and to bring enforcement actions to redress any such violations. (28) OCC contests the authority of state law enforcement officials to commence litigation to enforce compliance with state laws and with those federal laws that Congress has empowered state officials to enforce, even where OCC itself has declined to act. (29) Thus, even with respect to operating subsidiaries, which are organized solely under state law, OCC denies that state officials may exercise their law enforcement powers or even their subpoena authority. (30)

After briefly summarizing the consumer protection interests at stake and the role of the States in vindicating those interests, Part I of this Article highlights some of the more problematic aspects of OCC's Preemption Regulations and Visitorial Powers Regulations, and considers appropriate limitations on the powers of national bank operating subsidiaries. (31) Part II considers the importance of judicial review to the Framers' federalism design and discusses what can be distilled from their views about the substantive content of the Tenth Amendment. Part III presents a modest suggested template for doctrinal analysis of Tenth Amendment issues.

I

  1. Predatory Lending and OCC's Inadequate Response

    Predatory lending, a despicable practice usually involving manipulative sales tactics, vulnerable borrowers, high credit costs, and outrageous terms, has become prevalent in the United States. Common lending practices that have come to be characterized as "predatory" include equity stripping, (32) loan flipping, (33) hidden balloon payments, (34) "packing" or "padding," (35) high-cost payday lending, (36) "back-end" profiteering, (37) and other artifices (38) ranging from common exploitation to outright discrimination. (39) A recent attempt to define predatory lending has characterized it as a congeries of abusive loan terms or practices featuring one or more of the following: "(1) loans structured to result in seriously disproportionate net harm to borrowers; (2) harmful rent seeking; (3) loans involving fraud or deceptive practices; (4) other forms of lack of transparency ... that are not actionable as fraud; and (5) loans that require borrowers to waive meaningful legal redress." (40)

    Prominent among the broad spectrum of lenders that engage in these practices are national banks, acting either directly or indirectly (through affiliates or contractual arrangements such as "charter renting"). (41) Three brief examples of predatory lending should suffice, courtesy of the State of New York. The first involves a seventy-two-year-old woman identified as "Mrs. N.," who lived in the same residence in Elmhurst, Queens for more than thirty years and who was induced by a broker to refinance her existing 9% mortgage because she had a $2,200 tax lien on her property. Mrs. N. ended up with a $105,000 loan from an operating subsidiary of a national bank based in the Midwest that ultimately raised her effective interest rate to 10.5% and increased her monthly payment by nearly $2,000. Worse, her new loan was no longer a fixed rate mortgage but was instead an adjustable rate mortgage under which her effective interest rate could climb to 16.375%:

    Mrs. N.'s new monthly payments comprise 67 percent of her monthly income from Social Security and pension. Her sole benefit from the refinance was the payoff of the tax lien, which she could have satisfied with direct payments to the New York City Department of Finance through an...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT