Cuomo v. Clearing House

The Supreme Court has agreed to decide whether the New York attorney general’s office should be allowed to investigate whether national banks discriminated against minorities seeking mortgages.

In 2005, then-New York Attorney General Eliot Spitzer began investigating evidence of possible racial discrimination in the residential real estate lending practices of several national banks and their operating subsidiaries. Spitzer's investigation was prompted by data that the federal Home Mortgage Disclosure Act requires lenders to make public.

On the basis of these apparent racial disparities, Spitzer sent “letters of inquiry” to mortgage lenders implicated by the data, including several national banks and their operating subsidiaries. The letters stated that such disparities “are troubling on their face, and unless legally justified may violate federal and state anti-discrimination laws such as the Equal Credit Opportunity Act and its state counterpart, New York State Executive Law § 296-a.” The letters requested that lenders voluntarily produce certain non-public information regarding their mortgage policies and practices, as well as data concerning loans related to real property in New York State.

Soon afterwards, the OCC sued to prevent the attorney general's investigative and enforcement efforts. A new OCC regulation expansively interpreted the NBA’s visitorial powers provision, 12 U.S.C. § 484, to preclude state officials from enforcing national banks’ compliance with state or federal laws that concern activities authorized or permitted under the NBA.

The agency contended that the investigation was an unlawful exercise of visitorial powers. The Clearing House Association – a consortium of national banks, including several that received letters of inquiry from the attorney general – filed a similar complaint, seeking to enjoin the attorney general from “investigating, requesting or issuing subpoenas for information concerning, or taking any other action to enforce federal and state discrimination-in-lending laws” against its national bank members and their operating subsidiaries.

The attorney general's office argued that the OCC’s regulation was unlawful and should be set aside under the Administrative Procedure Act. The attorney general asserted that racial disparities reflected in the HMDA data “established a prima facie case, under the federal Fair Housing Act,” as well as under New York State Executive Law § 296-a. He argued that his investigation was not a prohibited exercise of visitorial powers, and that the OCC was not acting aggressively in this area. He also noted that he was empowered to sue under the Fair Housing Act, and that even if such a suit were considered a “visitation” it would come within the exception for “visitorial powers.”

The U.S. District Court for the Southern District of New York deferred to the OCC’s interpretation of the statute. In a separate opinion, the court agreed with Clearing House that the FHA does not create an exception authorizing the exercise of visitorial powers otherwise prohibited under § 484(a). In both cases the court issued the declaratory and injunctive relief sought by the OCC and Clearing House.

The attorney general's office appealed and on December 2007, a divided panel on the U.S. Court of Appeals for the Second Circuit upheld the rulings -- with the exception of the Fair Housing Act issue, which the court said was not ripe for adjudication.

On Jan. 16, the justices agreed to hear the case.

Question presented: Whether 12 USC § 484 and 12 CFR § 7.4000 prohibit measures taken by the New York State Attorney General to enforce state fair lending law against national banks by subjecting those entities to “visitorial powers.”

On its final day of the term, a divided Supreme Court held that New York attorney general's office should be allowed to investigate whether national banks discriminated against minorities seeking mortgages.

In 2005, then-New York Attorney General Eliot Spitzer began investigating evidence of possible racial discrimination in the residential real estate lending practices of several national banks and their operating subsidiaries. Spitzer's investigation was prompted by data that the federal Home Mortgage Disclosure Act requires lenders to make public.

On the basis of these apparent racial disparities, Spitzer sent “letters of inquiry” to mortgage lenders implicated by the data, including several national banks and their operating subsidiaries. The letters stated that such disparities “are troubling on their face, and unless legally justified may violate federal and state anti-discrimination laws such as the Equal Credit Opportunity Act and its state counterpart, New York State Executive Law § 296-a.” The letters requested that lenders voluntarily produce certain non-public information regarding their mortgage policies and practices, as well as data concerning loans related to real property in New York State.

Soon afterwards, the OCC sued to prevent the attorney general's investigative and enforcement efforts. A new OCC regulation expansively interpreted the NBA’s visitorial powers provision, 12 U.S.C. § 484, to preclude state officials from enforcing national banks’ compliance with state or federal laws that concern activities authorized or permitted under the NBA.

The agency contended that the investigation was an unlawful exercise of visitorial powers. The Clearing House Association – a consortium of national banks, including several that received letters of inquiry from the attorney general – filed a similar complaint, seeking to enjoin the attorney general from “investigating, requesting or issuing subpoenas for information concerning, or taking any other action to enforce federal and state discrimination-in-lending laws” against its national bank members and their operating subsidiaries.

The attorney general's office argued that the OCC’s regulation was unlawful and should be set aside under the Administrative Procedure Act. The attorney general asserted that racial disparities reflected in the HMDA data “established a prima facie case, under the federal Fair Housing Act,” as well as under New York State Executive Law § 296-a. He argued that his investigation was not a prohibited exercise of visitorial powers, and that the OCC was not acting aggressively in this area. He also noted that he was empowered to sue under the Fair Housing Act, and that even if such a suit were considered a “visitation” it would come within the exception for “visitorial powers.”

The U.S. District Court for the Southern District of New York deferred to the OCC’s interpretation of the statute. In a separate opinion, the court agreed with Clearing House that the FHA does not create an exception authorizing the exercise of visitorial powers otherwise prohibited under § 484(a). In both cases the court issued the declaratory and injunctive relief sought by the OCC and Clearing House.

The attorney general's office appealed and on December 2007, a divided panel on the U.S. Court of Appeals for the Second Circuit upheld the rulings -- with the exception of the Fair Housing Act issue, which the court said was not ripe for adjudication.

On June 29, 2009, the Supreme Court affirmed in part and reversed and part in a 5-4 opinion by Justice Antonin Scalia.

"The Comptroller’s regulation purporting to pre-empt state law enforcement is not a reasonable interpretation of the NBA," Scalia wrote.

Justice Clarence Thomas filed an opinion concurring in part and dissenting in part, joined by Chief Justice John G. Roberts Jr. and Justices Anthony Kennedy and Samuel A. Alito.

Question presented: Whether 12 USC § 484 and 12 CFR § 7.4000 prohibit measures taken by the New York State Attorney General to enforce state fair lending law against national banks by subjecting those entities to “visitorial powers.”