Courtney Gaughan, Some More Watters, Please: The Dodd-Frank Act’s New Preemption Standards Lighten Consumers’ Wallets

63 Fla. L. Rev. 1459 (2011)| | | |
The Dodd-Frank Wall Street Reform and Consumer Protection Act precipitates innumerable changes that will both directly and indirectly shape the future of the financial industry. This Note addresses two important subsets of the Dodd-Frank Act- Section 1044 and Section 1046-which vitiate the authority of federally chartered banks and thrifts to comply with federal laws over state laws. For decades, courts have preempted scores of state laws, which are often more strict than federal laws, from regulating the operations of national banks and federal thrifts. The Supreme Court’s decision in Watters v. Wachovia Bank, N.A. extended to operating subsidiaries the same preemption protection afforded to national banks and financial thrifts, allowing parent institutions to operate their subsidiaries uniformly. Now, Sections 1044 and 1046 of the Dodd-Frank Act make it more difficult for banks and thrifts to escape stringent state laws. For choice of law purposes, the new regulations treat subsidiaries the same as individuals and nonbank corporations, thereby burdening financial institutions. Although the goal of the Dodd-Frank Act is to protect consumers from predatory banking practices, the new preemption standards in Sections 1044 and 1046 will ultimately pass increased operating costs on to consumers. To prevent consumers from bearing the burden of these provisions, this Note urges Congress to reinstate the Watters preemption standard for subsidiaries of national banks and federal thrifts.

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