Preemption Determination

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 95-10]

Preemption Determination

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is

publishing its response to a written request for the OCC's

determination of whether Federal law preempts the application of a

Texas regulation that prescribes certain requirements relating to the

signs and advertising used to identify branch banking facilities

located in Texas. The OCC has determined that Federal law does not

preempt the application of this regulation to national banks located in

Texas. Section 114 of the Riegle-Neal Interstate Banking and Branching

Efficiency Act of 1994 (the Riegle-Neal Act) requires publication of

opinion letters concluding that Federal law preempts certain State

statutes and regulations. While publication is not required for opinion

letters concluding that Federal law does not preempt the State law, the

OCC has decided to publish this letter in order to disseminate broadly

its conclusions on preemption issues covered by the Riegle-Neal Act's

publication requirements.

FOR FURTHER INFORMATION CONTACT: Sue E. Auerbach, Senior Attorney, Bank

Activities and Structure Division, 250 E Street, SW, Eighth Floor,

Washington, DC 20219, (202) 874-5300.

SUPPLEMENTARY INFORMATION:

Background

Section 114 of the Riegle-Neal Act, Pub.L. 103-328 (12 U.S.C. 43),

generally requires the OCC to publish in the Federal Register a

descriptive notice of certain requests that the OCC receives for

preemption determinations. The OCC must publish this notice before it

issues any opinion letter or interpretive rule concluding that Federal

law preempts the application to a national bank of any State law

regarding community reinvestment, consumer protection, fair lending, or

the establishment of intrastate branches (four designated areas). The

OCC must give interested persons at least 30 days to submit written

comments, and must consider the comments in developing the final

opinion letter or interpretive rule.

The OCC must publish in the Federal Register any final opinion

letter or interpretive rule that concludes that Federal law preempts

State law in the four designated areas. It may, at its discretion,

publish any final opinion letter or interpretive rule that concludes

that State law in these areas is not preempted. The Riegle-Neal Act

also provides certain exceptions, not applicable to the present

request, to the Federal Register publication requirements.

Specific Request for OCC Preemption Determination

On March 10, 1995, the OCC published in the Federal Register (60 FR

13205) notice of a request for the OCC's determination of whether

Federal law preempts the application of Texas Rule 3.92, 7 Tex. Admin.

Code Section 3.92 (Rule), ``Naming and Advertising of Branch

Facilities,'' in its entirety, to national banks. The Rule was adopted

by the Texas State Finance Commission on August 19, 1994, pursuant to

Texas Civil Statutes section 342-917, ``Identification of Facilities,''

which generally provides that a bank may not use any form of

advertising that implies or tends to imply that a branch facility is a

separate bank.

The Rule, like the statute, prohibits advertising of a branch

facility in a manner which implies or fosters the

[[Page 32207]] perception that a branch facility is a separate bank.

The Rule is more explicit than the statute in identifying prohibited

signage and advertising and provides specific guidance in certain

situations.

Comments

The comment period closed on April 10, 1995. The OCC received two

comments in response to the March 10, 1995, notice. One commenter, a

law firm representing certain national banks, believed that Federal law

preempted the Rule because the national banking laws provide the OCC

with exclusive authority over the corporate affairs of national banks

and further because compliance with the Rule would be burdensome. The

other commenter, an association of state bank regulatory officials,

believed that Federal law did not preempt the Rule because (1) the Rule

does not conflict with any provision of Federal law; (2) legislative

history of the national banking laws indicates that Congress believed

there to be little federal supervisory interest in national bank names;

and (3) the Rule is not burdensome.

OCC Determination

The OCC, after carefully considering the comments, believes that

Federal law does not preempt the application of the Rule to national

banks located in Texas. As discussed in the opinion letter, not only is

there no actual conflict between Federal law and the Rule, but certain

amendments to the national banking laws provide evidence that Congress

intended questions regarding bank names to be settled primarily by

reference to State law. In addition, there is no evidence that

compliance with the Rule will be burdensome such that it will frustrate

the ability of national banks to exercise any of their authorized

powers. The Rule therefore is applicable to national banks in Texas.

The Riegle-Neal Act requires publication of opinion letters which

conclude that Federal law preempts State statutes or regulations. While

the Riegle-Neal Act does not require publication of letters concluding

that State law is not preempted, the OCC has decided to publish its

letter in order to disseminate broadly its preemption determinations

under the Riegle-Neal Act, and in this case also to provide national

banks located in Texas with notice and information regarding their

obligations under the Rule.

The OCC's letter appears as an appendix to this Notice.

Dated: June 9, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

Appendix

June 9, 1995

Mr. Everette D. Jobe, General Counsel, Texas Department of Banking,

2601 North Lamar Boulevard, Austin, Texas 78705-4294.

Re: Proposed Branch Advertising and Naming Rule/7 Tex. Admin. Code

Sec. 3.92

Dear Mr. Jobe: This is in response to your inquiry, raised in

your letters of June 17, 1994, to Randall Ryskamp, and October 24,

1994, to Dean Marriott (respectively, the District Counsel and

Deputy Comptroller of the OCC's Southwestern District Office), and

subsequently discussed in telephone conversations with OCC legal

staff, whether federal law preempts the application to national

banks of a state regulation relating to the signs and advertising

used to identify branch banking facilities located in Texas. In our

opinion, for the reasons discussed below, we believe that the

regulation in question is not preempted by federal law and is

applicable to national banks.

Background

On August 19, 1994, the Texas State Finance Commission adopted

Rule 3.92 (``Rule'') entitled ``Naming and Advertising of Branch

Facilities.'' 1 The Rule was adopted pursuant to Texas Civil

Statutes Sec. 342-917, ``Identification of Facilities,'' which

generally provides that a bank may not use any form of advertising

that implies or tends to imply that a branch facility is a separate

bank.2 The preamble to the Rule states that the Texas

legislature, in regulating identification of branch facilities, had

two substantive purposes. One was the possibility that unfair and

misleading competition could result if a failed bank is taken over

by another institution which continues to represent and advertise

the resulting branch as the original failed institution. The second

was that depositors could exceed the limits of Federal Deposit

Insurance Corporation insurance coverage by unintentionally

depositing excess amounts in two branches of the same bank in the

mistaken belief that they were two different banks. The Rule, which

was published for public comment, states that enforcement authority

with respect to national banks is vested in the OCC.

\1\ Your letter to Mr. Ryskamp referred to the ``revised

proposed rule'' that was then scheduled for publication in the June

28th issue of the Texas Register. Since that time, the Rule has been

published and adopted by the State Finance Commission. It became

effective on September 13, 1994.

\2\ Sec. 342-917 provides: A bank may not use a form of

advertising, including a sign or printed or broadcast material, that

implies or tends to imply that a branch facility is a separately

chartered or organized bank. A sign at a branch facility and all

official bank documents, including checks, cashier's checks, loan

applications, and certificates of deposit, must bear the name of the

principal bank and if a separate branch name is used must identify

the facility as a branch.

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The Rule, like the statute, prohibits advertising of a branch

facility in a manner which implies or fosters the perception that a

branch facility is a separate bank. However, it is longer and far

more explicit than the statute in identifying prohibited signage and

advertising and provides specific guidance in certain situations

characterized as misleading. While the Rule applies to all state and

national banks domiciled in Texas, its provisions and prohibitions

would most directly affect those banks that have what might be

termed a generic name followed by a geographic modifier (e.g., First

National Bank of Dallas, Second State Bank of Austin), rather than

what the Rule terms a ``unique legal name'' such as ``Jones National

Bank'' or ``Smith Bank.'' The principal provisions of the Rule

include the following:

1. Upon acquisition of one bank to serve as a branch of another

bank, use of the prior name of the extinguished bank to identify the

acquired bank facility is prohibited. This prohibition applies to

signs, advertising, and bank documents.

2. A sign directing the public to a branch facility must contain

either the legal name of the bank or a unique logo, trademark or

service mark of the bank. If a separate identifying name is used for

the branch facility that either contains the word ``bank'' or does

not contain the word ``branch'' and further does not identify the

facility as a branch, then an additional sign at the branch facility

must identify the legal name of the bank and identify the facility

as a branch. This additional sign could, for example, consist of

lettering on the entrance door or any other lettering visible to the

public.

3. The legal name of a bank is the full bank name as reflected

in its charter, except that in signs and advertising a bank may omit

terms which are either indicators of corporate status (N.A., Inc.,

Corp., L.B.A.) or geographic modifiers. However, where a bank

without a unique legal name proposes to establish a branch facility

(other than one within the city of domicile) within the same city as

or within a thirty-mile radius of a pre-existing facility of a bank

with the same or substantially similar legal name, the bank must

either include the geographic modifier on its signs, disclose the

city of its domicile on all signs directing the public to the

branch, or else put up a separate sign notifying the public that the

facility is a branch.

For example, a bank called First National Bank of Austin could

put up branches within the city of Austin with signs saying merely

``First National Bank.'' However, if the bank wishes to open a

branch in San Antonio, and another bank called First National Bank

of San Antonio already exists, then the First National Bank of

Austin would be required under the Rule to have signs reading either

``First National Bank of Austin'' or something like ``First National

Bank, San Antonio Branch.'' Alternatively, it could have a sign that

said merely ``First National Bank'' provided that another sign, or

lettering on the door, or anywhere visible to the public, clearly

identified the facility as a branch or gave the domicile of the

bank, or both. In this case, the second sign might say ``San Antonio

branch'' or ``a branch of First National Bank of Austin.'' However,

the bank would be in violation of the Rule if it only had signs

saying ``First National Bank'' or ``First [[Page 32208]] National

Bank, San Antonio'' because there is no disclosure to the public

that the facility is a branch.

4. If a bank without a unique legal name chooses not to place

the signs as described in the foregoing paragraph, then the Rule

requires that it provide notice to all pre-existing bank facilities

of other banks within the same banking market as the proposed branch

location that have the same or substantially similar legal name,

disregarding geographic modifiers, specifically advising the

recipient of the name to be used in connection with the proposed

branch facility. Banks so notified then have the opportunity to file

a protest regarding the name of the proposed branch.

For example, if a bank called First National Bank of Austin did

not wish to put up the requisite signs (as discussed above) for its

branch in San Antonio, it would, under the Rule, be required to

search the San Antonio banking market and provide notice of its

proposed branch to other banks named ``First National Bank'' or

``First National Bank of San Antonio.'' The banks so notified would

then have the opportunity to file a protest with your office (for

state banks) or with the OCC (for national banks).

You have indicated your expectation that few banks will choose

the notification alternative. It is your view, and in fact the goal

of the Rule, that banks in Texas will choose to put up clarifying

signs to identify for the public which bank facilities are branches.

5. While banks in Texas are permitted, like other businesses, to

operate under an assumed or professional name, they may not use an

assumed name to evade the Rule.

The Texas Assumed Business or Professional Name Act, Texas

Business and Commerce Code, Chapter 36, permits banks and other

businesses to operate under a business or assumed name provided

certain documents are filed with appropriate Texas authorities.

However, permission to operate under an assumed name would not

dispel a bank's obligation under the Rule to identify its branch

facilities to the public. Therefore, even if the above-mentioned

First National Bank of Austin had properly assumed the name ``First

National Bank,'' it would still, with respect to its branches, be

required under the Rule to put up the signs discussed in para. 3,

supra, or provide the notification described in para. 4, supra.

6. The Rule does not prescribe such specifics as number, size,

or location of signs, size of lettering, and so on. Further, it does

not require that branch names, signs, or advertising be approved by

any regulatory authority. You have stated that the goal of the Rule

is simply that the public be advised which bank facilities are

branches, and that any signs, or combination of signs, reasonably

making such identification will be permissible.

Discussion

The question of the extent to which national banks are subject

to state laws has existed since the inception of the first National

Bank Act in 1863. Under the dual banking system, all banks,

including national banks, are subject to the laws of the state in

which they are located unless those state laws are preempted by

federal law or regulation. The basic premise, expressed numerous

times by the United States Supreme Court, is:

that the national banks organized under the Acts of Congress are

subject to state legislation, except where such legislation is in

conflict with some Act of Congress, or where it tends to impair or

destroy the utility of such banks, as agents or instrumentalities of

the United States, or interferes with the purposes of their

creation.

Waite v. Dowley, 94 U.S. 527, 533 (1877). See also Davis v.

Elmira Savings Bank, 161 U.S. 275 (1896); Anderson National Bank v.

Luckett, 321 U.S. 233, 248 (1944). Banking is the subject of

comprehensive regulation at both the federal and state level and the

valid exercise of concurrent powers is the general rule unless the

state law is preempted. State law applicable to national banks will

generally be presumed valid unless it conflicts with federal law,

frustrates the purpose for which national banks were created, or

impairs their efficiency to discharge the duties imposed upon them

by federal law. National State Bank, Elizabeth, N.J. v. Long, 630 F.

2d 981, 987 (3d Cir. 1980); see, generally, Michie on Banks and

Banking, Vol. 7 para. 5 (1989 Repl.) This principle applies to

substantive state regulations as well as state statutes, since it is

well established that a rule or regulation of a public

administrative body, duly promulgated or adopted in pursuance of

properly delegated authority, has the force and effect of law. See

generally, 73 C.J.S. ``Public Administrative Bodies and

Procedures,'' Sec. 97.

In this instance, neither the Texas statute (Art. 342-917) nor

the Rule is in conflict with any federal law, since no provision

under the national banking laws governs national bank names or

requires their approval by a federal authority. On the contrary,

while the national banking laws did govern this issue at one time,

Congress changed the law in 1982 and left little doubt of its intent

that approval of national bank names (except for registered

trademarks) not be subject to federal regulation.

Prior to 1982, a national bank was required, pursuant to 12

U.S.C. Secs. 22 and 30, to obtain approval from the OCC both for its

initial name and for subsequent name changes. However, the Garn-St

Germain Depository Institutions Act of 1982 amended Sections 22 and

30 to delete this requirement for OCC approval of bank name or name

change. P.L. No. 320, 97th Cong., 2d Sess., Sec. 405, 96 Stat. 1469,

1512 (1982). The Senate Report accompanying this change gave the

following explanation:

Comptroller approval for bank name changes will no longer be

required. There exists little supervisory interest in the name of a

particular national bank. Federal approval procedures are to be

replaced by a simple notice requirement. Any confusion between bank

names shall be resolved under other laws, including the federal

Lanham Act and state statutory and common law principles of unfair

competition. S. Rep. No. 536, 97th Cong., 2d Sess. 28, reprinted in

1982 U.S. Code Cong. & Ad. News 3054, 3082.3

\3\ The Lanham Act is a common name for the Trademark Act of

1946, 15 U.S.C. Sec. 1051 et seq., which gives federal courts

jurisdiction over trademarks and trade names registered with the

United States Patent Office. It has no direct relevance to the

present discussion.

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OCC regulations were amended accordingly to provide that the OCC

would simply receive notice of the initial name and subsequent name

changes. 12 CFR 5.42.4 The only explicit requirement remaining

under the national banking laws is that bank names, whether new or

revised, include the word ``national.'' 12 U.S.C. Secs. 22 and

30(a). Congress has thus made clear its intention that issues

related to the names of national banks are subject to state law.

\4\ The regulations prior to the Garn-St Germain amendment

provided for OCC approval of national bank names and name changes:

The [OCC] considers an application for change in corporate title

to be primarily a business decision of the applicant. An application

will be approved if the proposed new title is sufficiently

dissimilar from that of any other existing or proposed unaffiliated

bank or depository financial institution so as not to substantially

confuse or mislead the public in a relevant market. 12 CFR 5.42(b)

(1981).

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Since these 1982 amendments, the OCC's policy on this matter is

that the naming of a national bank, or of a branch office of a

national bank, is primarily a business decision of the bank, subject

to applicable state law. However, should the OCC determine that a

national bank's name or advertising is so misleading or confusing as

to constitute an unsafe or unsound practice, it may initiate

enforcement action under 12 U.S.C. 1818(b). Further, while there is

little supervisory interest in the name of a national bank, the OCC

generally does not permit branches of a bank to operate under a

different bank name. To do so would not only violate the provisions

of 12 U.S.C. 22 and 30, which anticipate that a bank operate under a

single title, but could lead customers unwittingly to exceed FDIC

insurance limits by depositing excess amounts in two bank branches

in the mistaken belief that they were dealing with different banks.

In light of both the federal legislative history on this issue

and judicial preemption guidelines, we conclude that the Texas Rule

is not preempted with respect to national banks. Not only is there

no federal statute dealing with this issue, but there is no

indication that the Rule is unduly burdensome to national banks or

that it impairs their ability to discharge the duties imposed by

federal law. Long, supra at 987; Franklin National Bank v. New York,

347 U.S. 373 (1954). The national banking laws do not prevent state

measures aimed at preventing misleading advertising, as long as the

state regulations do not put national banks at a competitive

disadvantage relative to state financial institutions. As stated

above, the Rule does not prescribe any particular type of sign or

advertising. Its principal requirements are that banks which become

branches of another bank as part of an acquisition cease use of the

former bank name, and that bank branches identify themselves as

branches. Since it is obvious [[Page 32209]] that every bank, bank

branch, or other bank facility will have some sort of sign

identifying the premises to the public, it is not burdensome to

require that the sign not be confusing or misleading. Equally, it is

not burdensome to prohibit a bank branch resulting from a corporate

acquisition within a reasonable time thereafter to cease using the

name of its extinguished corporate predecessor.

Nor does the Rule appear to hamper banks in their operations or

efficiency or limit their ability to carry out their functions. The

situation here is unlike the situation in Franklin, supra, 347 U.S.

373, 377, in which a state law was determined to be preempted

because it prohibited national banks from advertising in connection

with one of their authorized activities (receiving deposits). Under

the Rule, banks are not prohibited from advertising any authorized

activity. They are not prevented from using abbreviated

``advertising'' names, such as ``FNB'' instead of ``First National

Bank,'' although if there should be two different ``First National

Banks'' in one city, the Rule requires the second one establishing a

bank facility, which will usually be an out-of-town bank, to

identify either its domicile city or its branch status: e.g., ``FNB

Austin'' or ``San Antonio Branch.'' Such requirements do not

infringe upon a national bank's ability to establish branches under

12 U.S.C. 36(c) or to carry out any other authorized activity.

Since the Texas Rule and the underlying statute are not in

conflict with federal law, do not prevent national banks from

carrying out their authorized functions under the national banking

laws, and do not unduly burden them in operating, it is my opinion

that they are applicable to national banks. The OCC, as the

authority responsible for administering and enforcing laws and

regulations applicable to national banks, will, as the Rule

envisions, determine compliance with the Rule with respect to

national banks.

I trust this is responsive to your inquiry.

Sincerely,

/s/

Julie L. Williams,

Chief Counsel.

[FR Doc. 95-15060 Filed 6-19-95; 8:45 am]

BILLING CODE 4810-33-P