The Office of the Comptroller of the Currency (OCC) issued an interpretive letter confirming that the National Bank Act (NBA) preempts state money transmitter licensing requirements as applied to national banks, regardless of whether the bank satisfies a state law exemption from the licensing requirement. The letter affirms settled doctrine in restating the OCC’s position that states are not permitted to require national banks to obtain state permission before exercising powers granted under federal law.
Background
The OCC issued the interpretive letter in response to a request from a New York-chartered limited liability trust company that received OCC approval to convert to an uninsured national bank with operations limited to those of a trust company.
Before becoming a national bank, the company held money transmitter licenses in multiple states, but subsequently surrendered the licenses. The Iowa Division of Banking questioned the license surrender, noting that Iowa law requires that entities engaged in money transmission obtain a license unless subject to an exemption, and that the company did not satisfy a license exemption applicable to national banks because it did not maintain federally insured deposits. The Iowa Division of Banking requested that the company provide a legal basis for the surrender of the license, and the company sought confirmation from the OCC that it could continue its operations without being subject to state licensing regimes.
OCC analysis
The OCC agreed with the company that, as a national bank, it was no longer required to maintain an Iowa money transmitter license even if its activities were considered money transmission under Iowa law. The OCC noted its conclusion was “clear and unambiguous under applicable law and longstanding precedent,” and grounded its analysis in two legal principles:
- National Bank Act preemption
Federal law authorizes national banks to engage in a range of activities on a nationwide basis. Under the governing standard, a state law is preempted where it “prevents or significantly interferes” with the exercise of those powers.
The OCC reasoned that a state money transmitter licensing requirement operates as a condition on the exercise of federally authorized banking activities. Even if framed as a threshold or procedural requirement, such a regime would subject a national bank’s ability to operate to state approval. The OCC emphasized that this type of condition is inconsistent with the structure of the NBA, which allows national banks to exercise their powers without obtaining additional state permission – and which precludes outcomes where a state could effectively block or curtail those powers through licensing decisions.
- Exclusive visitorial authority
The OCC separately relied on the NBA’s allocation of supervisory authority. Under 12 USC § 484, national banks are subject to federal “visitorial” powers – such as examination, reporting and enforcement – except in limited circumstances.
The OCC observed that state licensing regimes typically entail ongoing supervisory features, including reporting obligations, examination authority and enforcement tools. Applying such a framework to a national bank would, in the OCC’s view, transfer oversight authority that federal law assigns exclusively to the OCC. That conflict provides an independent basis for rejecting the application of state licensing requirements.
Taken together, the OCC concluded that a national bank may conduct its federally authorized activities nationwide without obtaining a state money transmitter license, regardless of whether it satisfies any state-law exemption.
What’s next?
While the interpretive letter does not break new doctrinal ground, it reiterates preemption principles and applies the doctrine to an increasingly popular compliance approach/business model: digital asset businesses and other fintechs seeking and securing national trust bank charters in place of state money transmission licenses. Note also that the letter’s preemption reasoning extends beyond Iowa, as the OCC expressly confirmed that the analysis applies to similar state money transmitter licensing requirements across all states, regardless of whether the state limits its express licensing exemptions to a subset of national banks.
Businesses considering engaging in payments-related activities, or that already do, may consider the possibilities of obtaining or converting to a national bank charter and the implications for a state money transmitter license compliance strategy. For state regulators, the letter highlights the limits of state oversight where national banks are acting within their federally authorized powers (as interpreted by the federal authority) and clarifies states cannot use money transmitter licensing regimes as an indirect mechanism to regulate or supervise national banks.