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National Bank Preemption

ABA Position

For more than 160 years, the principle of national bank preemption has undergirded America’s dual banking system, which has been a source of economic strength for the nation, ensuring that banks of all sizes have the flexibility to innovate and serve every market in the United States. Unfortunately, an increasing number of states are considering laws that disregard the existing federal law and give state regulators authority over basic operations of a national bank, including decisions about deposit taking, lending, and risk management. ABA calls on regulators to vigorously defend the principle of national bank preemption.

As part of the National Bank Act of 1863, signed into law by President Lincoln, Congress established the Office of the Comptroller of the Currency (OCC) and expressly charged it with chartering and regulating national banks. This created the dual banking system in which national banks and state banks are chartered and supervised by different levels of government, with state regulators retaining oversight of state-chartered institutions.

Some banks choose to receive their charter from their home state, and others choose a national charter. Each comes with benefits and obligations that a bank must weigh to best serve its customers and communities and power the world’s largest economy.

A strong national banking system with uniform rules is essential to the national economy. A single national standard provides efficiency and clarity for institutions operating across state lines. Efficiency allows for lower prices and better products and services. Clarity helps customers understand what products and services they are getting. In establishing the national banking system under a comprehensive nationwide framework, Congress enshrined these principles in federal law.

States imposing their own regulations on national banks creates a patchwork of differing regulatory requirements across the country and undermines the longstanding efficiencies and economic benefits derived from a national banking system with uniform rules. A patchwork of state laws would limit product offerings, increase operating expenses, and reduce the efficiency with which banks do business. Moreover, it is bank customers and the communities banks serve that benefit from federal preemption through more innovative offerings at lower prices. It is those customers and communities that suffer when state laws impede national bank operations.

Additionally, state consumer financial laws are needlessly duplicative. Banks are already subject to and examined for compliance with robust federal consumer financial laws and regulations, and bank regulators already possess the enforcement tools necessary to resolve any compliance concerns.

While a strong national bank preemption standard is obviously important to national banks, it is also important to many state-chartered banks – perhaps even more so. Wanting to ensure banks chartered in their state are able to compete with national banks, many states have enacted so-called “wildcard” statutes. Wildcard statutes vary significantly from state to state in scope and operation, but all are generally drafted to permit state-chartered banks to engage in some or all the activities federal law and regulation allow national banks to pursue and to harmonize state safety and soundness standards with those applicable to national banks. Therefore, a strong national bank preemption standard is also critical to state-chartered banks, and the wildcard statutes promote a level playing field and fair competition.

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Key State Legislation

  • Florida HB 989: This measure makes it an “unsafe and unsound practice” for a financial institution doing business in FL to deny or cancel its services to a person, or otherwise discriminate against a person in making services available, for a variety of reasons based on protected factors (political opinions, social credit score, etc.). The bill requires banks to sign an attestation that they are in compliance with the non-discrimination provisions. If a customer alleges violations of the non-discrimination provisions, the office must investigate the claim and issue a report. Failure to comply constitutes a violation of the Florida Deceptive and Unfair Trade Practices Act and is enforced by the state attorney general.
  • Tennessee HB 2100: This measure prohibits a financial institution with $100,000,000,000 in assets or more from denying or canceling its services to a person based on: 1) the person's political opinions, speech, or affiliations; 2) the person's religious beliefs, religious exercise, or religious affiliations; 3) any factor if it is not a quantitative, impartial, and risk-based standard, including any such factor related to the person's business sector; or 4) the use of any rating or action that considers a social credit score. A violation of this measure also constitutes a violation of the Tennessee Consumer Protection Act of 1977 and is to be deemed an unfair or deceptive act or practice affecting trade or commerce.
  • Illinois Interchange Fee Prohibition Act: This measure prohibits charging interchange fees on the sales tax and gratuity portion of a transaction. It is effective Jul. 1, 2025.

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