Letter concludes that federal law would preempt laws in Massachusetts and Florida that purport to limit or restrict a national bank from establishing deposit-taking ATMs.

O

Comptroller of the Currency

Administrator of National Banks

Washington, DC 20219

October 15, 2001 Interpretive Letter #939

July 2002

12 USC 24(7)

Dear [ ]:

This responds to your letter of June 28, 2001, on behalf of [ ] (“the

Bank"). In your letter, you request confirmation by the Office of the Comptroller of the

Currency of your view that federal law preempts the laws of Massachusetts and Florida that

purport to restrict or prohibit a national bank from establishing deposit-taking ATMs.1 For the

reasons discussed below, we conclude that federal law would preempt those state laws.

BACKGROUND

The Bank is considering establishing deposit-taking ATMs in a number of states,

including Massachusetts and Florida. The Bank has no branches or offices in either state, but

contemplates installing unmanned, deposit-taking ATMs in publicly accessible areas of buildings

at which certain of its affiliates have operations. The Bank’s customers will be able to access

their accounts through the Bank’s ATMs or ATMs owned and operated by other financial

institutions in the networks, and customers of these other financial institutions will be able to

access their accounts through the Bank’s ATMs.

The Massachusetts Statute

Under Massachusetts law, an out-of-state bank may establish an ATM only if the laws of

the state in which it has its main office would permit a bank with its main office in

Massachusetts to establish an ATM in that state:

No [non-Massachusetts] financial institution . . .shall purchase, establish, install,

operate, lease or use individually or with any financial institution or organization

1 As explained below, the issue presented by the Bank’s request is essentially identical to the issue addressed in

Bank One v. Guttau, 190 F.3d 844 (8th Cir. 1999). For that reason, the publication and comment requirements of 12

U.S.C

purchase, establish, install,

operate, lease or use individually or with any financial institution or organization

1 As explained below, the issue presented by the Bank’s request is essentially identical to the issue addressed in

Bank One v. Guttau, 190 F.3d 844 (8th Cir. 1999). For that reason, the publication and comment requirements of 12

U.S.C. § 43 are not applicable to the Bank’s request. See 12 U.S.C. § 43(c)(1). The OCC provided an opportunity

for regulators in the affected states to comment, however, and this letter therefore takes into account comments on

the Bank’s request the OCC received from the Florida Division of Banking and Finance and the Massachusetts

Office of Consumer Affairs.

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2

or share with any financial institution or organization any such electronic branch

in the commonwealth unless the financial institution . . . has its main office in one

of the states of the United States, and the laws of such state expressly authorize,

under conditions no more restrictive than those imposed by this chapter as

determined by the commissioner, financial institutions or organizations organized

under the laws of the commonwealth to purchase, establish, install, operate,

lease, use or share electronic branches in such other state; provided, however,

that any such financial institution . . . shall have applied to and obtained approval

of the commissioner prior to engaging in any activity pursuant to this section.

Mass. Gen. Laws Ann. Ch. 167B, §§ 1 and 3 (West 2001) (emphasis added). The Massachusetts

Division of Banks enforces this reciprocity statute by requiring an out-of-state bank to “submit a

completed application, along with a copy of the relevant statute from the state in which it has its

main office, and an affidavit signed by such bank’s counsel affirming that such statute would

authorize a bank which has its main office in Massachusetts to establish an electronic branch

within that state.” Massachusetts Division of Banks Opinion 96-161

requiring an out-of-state bank to “submit a

completed application, along with a copy of the relevant statute from the state in which it has its

main office, and an affidavit signed by such bank’s counsel affirming that such statute would

authorize a bank which has its main office in Massachusetts to establish an electronic branch

within that state.” Massachusetts Division of Banks Opinion 96-161.

According to your letter, you have been advised by staff at the Massachusetts Division of

Banks that the Division would enforce the application and reciprocity requirements against a

national bank that has its home office outside Massachusetts. The Bank’s home state of New

Jersey prohibits out-of-state financial institutions from establishing ATMs in New Jersey. It has

no reciprocity exception to this prohibition. Thus, if the Massachusetts statute applied to the

Bank, the Bank would be prohibited from establishing an ATM in Massachusetts.

The Florida Statute

Florida’s “remote financial service units” statute prohibits an out-of-state bank from

establishing and operating a deposit-taking ATM in Florida:

Any bank which is not authorized to do business in [Florida] or does not have its

principal office and place of business in [Florida] is prohibited from using in

[Florida] any remote financial service unit or any associated system by which a

remote financial service unit is operated. However, any bank which is not

authorized to do business in [Florida] or does not have its principal office and

place of business in [Florida] may use in [Florida] any remote financial service

unit or any associated system within [Florida] by which such a remote service unit

is operated if . . . such bank does not take deposits, either directly or indirectly,

from any source whatsoever by use of the remote financial service unit or

associated system.

Fla. Stat. Ann. § 658.65 (West 2000) (emphasis added)

and

place of business in [Florida] may use in [Florida] any remote financial service

unit or any associated system within [Florida] by which such a remote service unit

is operated if . . . such bank does not take deposits, either directly or indirectly,

from any source whatsoever by use of the remote financial service unit or

associated system.

Fla. Stat. Ann. § 658.65 (West 2000) (emphasis added). Although the term “remote

financial service unit” is not defined in the Florida statutes or regulations, staff at the

Florida Banking Department have opined that the term includes an ATM. According to

your letter, Department staff also interpret the phrase “authorized to do business” to

mean, in the context of an out-of-state bank, a bank that has established a branch in

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Florida pursuant to Florida’s branching laws.2 Thus, if applied to the Bank, the Florida

law would prohibit the Bank from establishing deposit-taking ATMs in Florida unless the

Bank first establishes a branch there.

ANALYSIS

Permissibility of the activity

The threshold question in any preemption analysis is whether the activities in

question are permissible for a national bank under federal law. If they are not, then there

is no preemption issue.

National banks are authorized to establish and operate ATMs.3 The banking services

provided through ATMs represent long-established banking activities: receiving deposits,

disbursing cash from bank accounts, and extending credit in the form of cash advances. Each of

these activities lies at the heart of national bank authority under 12 U.S.C. 24(Seventh), whether

as part of the enumerated national bank power to receive deposits, as part of the authority to

engage in the “business of banking,” or as an activity incidental to permissible banking activity.4

As the OCC has expressly reaffirmed in a recently adopted regulation, 12 C.F.R

of cash advances. Each of

these activities lies at the heart of national bank authority under 12 U.S.C. 24(Seventh), whether

as part of the enumerated national bank power to receive deposits, as part of the authority to

engage in the “business of banking,” or as an activity incidental to permissible banking activity.4

As the OCC has expressly reaffirmed in a recently adopted regulation, 12 C.F.R. § 7.4003,5 the

power to deploy and operate ATMs is implicit in the National Bank Act’s authorization of

national banks to receive deposits, make loans and carry on the “business of banking.” ATMs

and other electronic media simply represent a different means of exercising established banking

powers. 12 C.F.R. § 7.1019.

Moreover, a national bank’s authority to establish and operate ATMs is

unaffected by the federal branching law. Congress has specifically directed that state law

will apply, in certain respects, to a national bank’s authority to branch interstate. The

McFadden Act, as amended, provides that national banks may establish “branches” only

to the extent that state law authorizes state banks to establish branches.6 However, the

McFadden Act, as revised, expressly excludes ATMs from the definition of “branch,”

2 In his letter responding to the OCC’s request for Florida’s comments on the Bank’s preemption request, Richard T.

Donelan, Jr., the Chief Counsel of the Florida Division of Banking and Finance, did not address this staff

interpretation of the Florida statute. Mr. Donelan did, however, confirm that Florida “provides criminal penalties for

the taking of deposits by financial institutions that are not authorized to do business in Florida. . . .”

3 12 C.F.R. § 7.4003.

4 The powers clause of section 24(Seventh) provides that a national bank may “exercise by its board of directors or

duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the

business of banking . . . .” 12 U.S.C. § 24(Seventh)

eposits by financial institutions that are not authorized to do business in Florida. . . .”

3 12 C.F.R. § 7.4003.

4 The powers clause of section 24(Seventh) provides that a national bank may “exercise by its board of directors or

duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the

business of banking . . . .” 12 U.S.C. § 24(Seventh). See NationsBank v. Variable Annuity Life Ins. Corp., 513 U.S.

251 (1995) (the “business of banking” is not limited to the list of powers enumerated in section 24(Seventh)).

5 64 Fed. Reg. 60092 (Nov. 4, 1999).

6 See 12 U.S.C. §§ 36(c)-(g).

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4

thereby removing national bank ATMs from the reach of state-law-based restrictions.7

Accordingly, § 7.4003 of the OCC’s rules provides that an ATM is not a branch “and is

not subject to state geographic or operational restrictions or licensing laws.”

Based on this analysis, it is clear that the Bank’s proposed activities through

ATMs in Massachusetts and Florida are permissible under well-settled federal authority.

Preemptive effect of federal law

In our opinion, federal law preempts the Massachusetts and Florida statutes that

purport to restrict or prohibit a national bank’s authority to establish ATMs in those

states, because the statutes conflict with federal law authorizing the Bank to engage in the

activities in question and with the OCC’s exclusive visitorial powers over national banks.

These points are addressed in more detail below, following a brief summary of the law

governing preemption and the OCC’s visitorial powers.

Preemption and visitorial powers

bank’s authority to establish ATMs in those

states, because the statutes conflict with federal law authorizing the Bank to engage in the

activities in question and with the OCC’s exclusive visitorial powers over national banks.

These points are addressed in more detail below, following a brief summary of the law

governing preemption and the OCC’s visitorial powers.

Preemption and visitorial powers. When the federal government acts within the sphere of

authority conferred upon it by the Constitution, federal law is paramount over, and may preempt,

state law.8 Federal authority over national banks stems from several constitutional sources,

including the Necessary and Proper Clause and the Commerce Clause of the United States

Constitution.9

The United States Supreme Court has identified several bases for federal preemption of

state law. First, Congress may expressly state that it intends to preempt state law.10 Second, a

federal statute may create a scheme of federal regulation “so pervasive as to make reasonable the

inference that Congress left no room for the States to supplement it.”11 Third, the state law may

conflict with a federal law.12 In Barnett Bank v. Nelson,13 the Supreme Court elaborated on this

third test:

7 See Economic Growth and Regulatory Paperwork Reduction Act, Pub. L. No. 104-208, § 2205(a), 110 Stat. 3009-

405 (Sept. 30, 1996); see also Bank One, Utah v. Guttau, 190 F.3d 844 (8th Cir. 1999), cert. denied sub nom., Foster

v. Bank One, Utah, 120 S. Ct. 1718 (2000) (Iowa location, registration, and advertising restrictions on national bank

ATMs preempted).

8 U.S. Const. art. VI, cl. 2 (the Supremacy Clause); Cohen v. Virginia, 19 U.S. (6 Wheat.) 264, 414 (1821)

(Marshall, C.J.).

9 U.S. Const. art. I, § 8, cl.3, cl. 18; McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 409 (1819).

10 E.g., Jones v. Rath Packing Co., 430 U.S. 519 (1977).

11 Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982).

12 See, e.g., Franklin National Bank, 347 U.S

Ms preempted).

8 U.S. Const. art. VI, cl. 2 (the Supremacy Clause); Cohen v. Virginia, 19 U.S. (6 Wheat.) 264, 414 (1821)

(Marshall, C.J.).

9 U.S. Const. art. I, § 8, cl.3, cl. 18; McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 409 (1819).

10 E.g., Jones v. Rath Packing Co., 430 U.S. 519 (1977).

11 Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982).

12 See, e.g., Franklin National Bank, 347 U.S. 373 (1954); Davis v Elmira Savings Bank, 161 U.S. 275 (1896).

13 517 U.S. 25, 31 (1996).

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5

Federal law may be in “irreconcilable conflict” with state law. Rice v. Norman

Williams Co., 458 U. S. 654, 659 (1982). Compliance with both statutes, for

example, may be a “physical impossibility,” Florida Lime & Avocado Growers,

Inc. v. Paul, 373 U. S. 132, 142-143 (1963); or, the state law may “stan[d] as an

obstacle to the accomplishment and execution of the full purposes and objectives

of Congress.” Hines v. Davidowitz, 312 U. S. 52, 67 (1941).

The Court in Barnett went on to state that --

In defining the pre-emptive scope of statutes and regulations granting a power to

national banks, these cases [i.e., national bank preemption cases] take the view

that normally Congress would not want States to forbid, or to impair significantly,

the exercise of a power that Congress explicitly granted. To say this is not to

deprive States of the power to regulate national banks, where ... doing so does not

prevent or significantly interfere with the national bank’s exercise of its powers.14

A conflict between a state law and federal law need not be complete in order for federal

law to have preemptive effect

d, or to impair significantly,

the exercise of a power that Congress explicitly granted. To say this is not to

deprive States of the power to regulate national banks, where ... doing so does not

prevent or significantly interfere with the national bank’s exercise of its powers.14

A conflict between a state law and federal law need not be complete in order for federal

law to have preemptive effect. Where a federal grant of authority is unrestricted, for example,

state law that attempts to place limits on the scope and exercise of that authority will be

preempted.15 Thus, federal law preempts not only state laws that purport to prohibit a national

bank from engaging in an activity permissible under federal law but also state laws that condition

or confine the exercise by a national bank of its express or incidental powers. As the Court

stated in Barnett,

. . . where Congress has not expressly conditioned the grant of “power” upon a

grant of state permission, the Court has ordinarily found that no such condition

applies. In Franklin Nat. Bank, the Court made this point explicit. It held that

Congress did not intend to subject national banks’ power to local restrictions,

because the Federal power-granting statute there in question contained “no

indication that Congress [so] intended . . . as it has done by express language in

several other instances.”16

Moreover, the preemption may arise because of a conflict between a state law and a

federal regulation. As stated by the Supreme Court in Fidelity Federal Savings and Loan Ass'n

v. de la Cuesta17:

Federal regulations have no less pre-emptive effect than federal statutes. Where

Congress has directed an administrator to exercise his discretion, his judgments are

14 Barnett, 517 U.S. at 33.

15 See, e.g., New York Bankers Association, Inc. v. Levin, 999 F. Supp. 716 (W.D.N.Y. 1998).

16 Barnett, 517 U.S. at 34 (citations omitted; emphasis in original).

17 458 U.S. 141 (1982).

ss pre-emptive effect than federal statutes. Where

Congress has directed an administrator to exercise his discretion, his judgments are

14 Barnett, 517 U.S. at 33.

15 See, e.g., New York Bankers Association, Inc. v. Levin, 999 F. Supp. 716 (W.D.N.Y. 1998).

16 Barnett, 517 U.S. at 34 (citations omitted; emphasis in original).

17 458 U.S. 141 (1982).

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6

subject to judicial review only to determine whether he has exceeded his statutory

authority or acted arbitrarily. * * * A pre-emptive regulation's force does not depend on

express congressional authorization to displace state law; moreover, whether the

administrator failed to exercise an option to promulgate regulations which did not disturb

state law is not dispositive.

458 U.S. at 153-154 (citations omitted).

Congress vested the OCC with the authority to determine whether a national bank is

engaging in permissible activities. Under 12 U.S.C. § 484 and other federal statutes,18 the OCC

has exclusive visitorial powers over national banks except as otherwise expressly provided by

federal law.19 These powers include the right to examine a bank, inspect a bank's books and

records, regulate and supervise activities authorized or permitted pursuant to federal banking

law, and enforce compliance with any applicable federal or state laws concerning those

activities.20

Application of federal law to state statutes. If applied to the Bank, the state laws at issue

would prohibit the Bank from establishing ATMs in Massachusetts and Florida, respectively.

Given that the Bank's home state has no provision in its banking laws that would satisfy the

Massachusetts reciprocity requirement, the laws of Massachusetts would, if applied to the Bank,

preclude it from establishing ATMs in that state. Similarly, the Bank does not have its principal

place of business in Florida and is not "authorized to do business" as the Florida Banking

Department interprets that term

the Bank's home state has no provision in its banking laws that would satisfy the

Massachusetts reciprocity requirement, the laws of Massachusetts would, if applied to the Bank,

preclude it from establishing ATMs in that state. Similarly, the Bank does not have its principal

place of business in Florida and is not "authorized to do business" as the Florida Banking

Department interprets that term. Thus, the Florida law would prohibit the Bank from

establishing deposit-taking ATMs in that state.

In Guttau, the United States Court of Appeals for the Eighth Circuit considered

similar state restrictions imposed in Iowa on a national bank’s authority to deploy and

operate ATMs. In that case, a national bank operated several ATMs in Iowa but

maintained no branches in that state and sought to enjoin the enforcement of Iowa’s ATM

restrictions. Iowa prohibited the operation of an ATM by any bank without an office in

Iowa, required ATM operators to apply for state approval, and prohibited the display of

financial institution advertising upon ATM terminals. The Court of Appeals held that the

Iowa restrictions were preempted by the National Bank Act:

Congress has made clear in the NBA its intent that ATMs are not to be subject to

state regulation, and thus the provisions of the Iowa [law] that would prevent or

18 See, e.g., 12 U.S.C. §§ 93, 481, and 1818.

19 Guthrie v. Harkness, 199 U.S. 148 (1905); Bank One Texas, N.A. v. Patterson, No. 3:93-CV-1081-G (N.D. Tex.

Sept. 9, 1994), aff’d 68 F.3d 469 (5th Cir. 1995).

20 12 C.F.R. § 7.4000(a)(2). See also First National Bank of Youngstown v. Hughes, 6 F. 737, 740-41 (1881).

e Iowa [law] that would prevent or

18 See, e.g., 12 U.S.C. §§ 93, 481, and 1818.

19 Guthrie v. Harkness, 199 U.S. 148 (1905); Bank One Texas, N.A. v. Patterson, No. 3:93-CV-1081-G (N.D. Tex.

Sept. 9, 1994), aff’d 68 F.3d 469 (5th Cir. 1995).

20 12 C.F.R. § 7.4000(a)(2). See also First National Bank of Youngstown v. Hughes, 6 F. 737, 740-41 (1881).

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7

significantly interfere with Bank One’s placement and operation of its ATMs

must be held to be preempted.21

Like the state laws at issue in Guttau, the Massachusetts and Florida laws in

question here would prohibit the Bank's exercise of its permissible federal powers. For

this reason, it is our opinion that the state laws are preempted by federal law.22

Nor would the Massachusetts or Florida statutes at issue be immune from preemption

under the Electronic Funds Transfer Act23 (“EFTA”). The EFTA allows states to retain control

over electronic transfers:

This subchapter does not annul, alter, or affect the laws of any State relating to

electronic funds transfers, except to the extent that those laws are inconsistent

with the provisions of this subchapter, and then only to the extent of the

inconsistency. A state law is not inconsistent with this subchapter if the

protection such law affords any consumer is greater than the protection afforded

by this subchapter.24

However, as explained by the court in Guttau,

this anti-preemption provision is specifically limited to the provisions of the federal

EFTA, and nothing therein grants the states any additional authority to regulate national

banks. State regulation of national banks is proper where "doing so does not prevent or

significantly interfere with the national bank's exercise of its powers." Barnett Bank, 116

S. Ct. at 1109. Congress has made clear in the [National Bank Act] its intent that ATMs

are not to be subject to state regulation, and thus the provisions of the Iowa EFTA that

21 Id

regulation of national banks is proper where "doing so does not prevent or

significantly interfere with the national bank's exercise of its powers." Barnett Bank, 116

S. Ct. at 1109. Congress has made clear in the [National Bank Act] its intent that ATMs

are not to be subject to state regulation, and thus the provisions of the Iowa EFTA that

21 Id. at 850; see also Metrobank, N.A., et al. v. Foster, No. 4-01-CV-10226, order at 12, n.7 (S.D. Iowa Aug. 21,

2001) (Guttau persuasive in determining that it is appropriate for the District Court to address similar question of

whether Iowa prohibition on ATM fees is preempted).

22 See Barnett, 517 U.S. at 34; 12 C.F.R. § 7.4003. Even if the Bank were able to satisfy the requirements

imposed by Massachusetts and Florida, the barriers to entry presented by these states' laws would constitute

an impermissible exercise of visitorial powers over the Bank. As explained above, Congress intended to

permit national banks to receive deposits and to have “all such incidental powers as shall be necessary to

carry on the business of banking." 12 U.S.C. § 24(Seventh). Federal regulations expressly interpret this

grant to include the authority to use ATMs. 12 C.F.R. § 7.4003. Massachusetts provides that an out-of-

state bank, including a national bank, must “have applied to and obtained approval of the commissioner

prior to” establishing an ATM. Similarly, the Florida statute requires an out-of-state bank, including a

national bank, to become “authorized” by the Banking Department before establishing a deposit-taking

ATM in Florida. A state requirement that a national bank obtain state approval or license to exercise a

power authorized under Federal law is an assertion by the state that it has supervisory or regulatory

authority over national banks. This is in direct conflict with the Federal law providing that the OCC has

exclusive visitorial powers over national banks except as otherwise provided by Federal law. 12 U.S.C

A state requirement that a national bank obtain state approval or license to exercise a

power authorized under Federal law is an assertion by the state that it has supervisory or regulatory

authority over national banks. This is in direct conflict with the Federal law providing that the OCC has

exclusive visitorial powers over national banks except as otherwise provided by Federal law. 12 U.S.C. §

484; 12 C.F.R. § 7.4000. A state law that purports to vest this authority in a state is preempted.

23 15 U.S.C. §§ 1693-1693r.

24 15 U.S.C. § 1693q.

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8

would prevent or significantly interfere with Bank One's placement and operation of its

ATMs must be held to be preempted.25

Thus, the preemption analysis articulated above is unaffected by a state's EFTA.

CONCLUSION

Because ATMs are not branches under 12 U.S.C. § 36(j), state law geographic

restrictions are inapplicable to ATMs. Congress has placed no other restrictions upon

ATMs in the National Bank Act, and, therefore, a state may not prevent, restrict, or

condition a national bank's authority to establish ATMs. Accordingly, we conclude that

the Massachusetts reciprocity statute and the Florida prohibition on the establishment of

deposit-taking ATMs by out-of-state banks are preempted by federal law.

Sincerely,

-signed-

Julie. L. Williams

First Senior Deputy Comptroller and Chief Counsel

cc:

Richard T. Donelan, Jr.

Chief Banking Counsel

Office of Comptroller

Florida Department of Banking and Finance

Thomas J. Curry

Commissioner of Banks

Commonwealth of Massachusetts

Jennifer Davis Carey, Director

Office of Consumer Affairs and Business Regulation

Commonwealth of Massachusetts

25 Guttau, 190 F. 3d at 850.