Wells Fargo Bank of Texas NA v. James

REVISED FEBRUARY 17, 2003

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________

No. 01-51298

WELLS FARGO BANK OF TEXAS NA; BANK OF
AMERICA NA; BANK ONE NA; THE CHASE
MANHATTAN BANK; COMERICA BANK-TEXAS,

Plaintiffs - Appellees,

v.

RANDALL S. JAMES, in his official
capacity as Texas Banking Commissioner,

Defendant-Appellant.

Appeal from the United States District Court
for the Western District of Texas

February 5, 2003

Before DAVIS, JONES, and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This banking case presents a preemption question. The

Texas Legislature enacted a par value statute, Tex. Bus. & Com. Code

§ 4.112, (hereinafter “Par Value”) which prohibits banks in Texas,

including national banks, from charging a fee for cashing a check

that is presented to be drawn against an account that the bank

itself holds. Plaintiff-appellees Wells Fargo Bank of Texas, et
al. (the “Banks”) are national banks that do business in Texas.1

The Banks contend that Par Value is preempted by the National Bank

Act, 12 U.S.C. § 21 et seq., and by 12 C.F.R. §7.4002(a). On cross

motions for summary judgment, the district court found that Par

Value is preempted, granted summary judgment in favor of the Banks,

permanently enjoined Defendant-appellant James, in his capacity as

Texas Banking Commissioner (hereinafter Texas or Appellant), from

enforcing Par Value, and decreed Par Value null and void. Appellant

appeals from this ruling.

I.

Texas enacted Par Value which provides that, “ a payor bank

shall pay a check drawn on it against an account with a

sufficient balance at par, without regard to whether the payee

holds an account at the bank.” Texas BCC §4.112(a). The

legislation prohibits banks from charging a fee to non-account

holding payees who present a check to the bank which holds the

account that the check is drawn against. Under Par Value banks

are still permitted to charge a fee for cashing a check to the

account holder who authored the check. Texas offers two policy

considerations in support of Par Value. First, Texas identifies

1
Specifically, Plaintiffs-Appellees Wells Fargo Bank, Bank
of America, and Bank One are national banks. Plaintiffs-Appellees
Chase Manhattan Bank, Comerica Bank-Texas, and Compass Bank are
state-chartered banks which, for the purpose of this appeal,
enjoy the same preemption rights as national banks pursuant to
the Federal Deposit Insurance Act, 12 U.S.C. § 1831a(j)(1), and
the Texas Constitution art.16, § 16(c).

2
Par Value as a consumer protection measure, enacted to ensure

that Texas employees, and in particular the working poor,

receive payment for the face value of their paycheck. Texas

notes that individuals who do not have a checking account and who

seek to cash checks at the institution which issued the

negotiable instrument are predominately low-income individuals,

and are also disproportionately members of minorities. Texas

sought to prohibit banks from exporting the cost of issuing a

negotiable instrument to its account holder- a service that is

clearly useless unless the instrument is redeemable - to non-

account holding payees with whom the bank has no financial

relationship. Additionally, Texas sought to protect the integrity

of negotiable instruments in Texas, concluding that if a check is

subject to a redemption fee, the value of the check itself

differs from its face value. Par Value was scheduled to go into

effect September 1, 2001.

Appellee Banks are organized under the National Bank Act

(NBA), 12 U.S.C. §21 et seq. and they conduct business in Texas.

The NBA authorizes federally chartered national banks to,

“exercise all such incidental powers to carry on the business of

banking; by discounting and negotiating promissory notes, drafts,

bills of exchange and other evidences of debt.” 12 U.S.C.

§24(Seventh).

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

3
agency empowered by the NBA to supervise and regulate federally

chartered banks in accordance with the broad substantive

provisions of the NBA. In an exercise of this authority the OCC

promulgated 12 C.F.R. §7.4002(a), which provides that a national

bank may, “charge its customers non-interest charges and fees.”

The OCC interprets the word “customer” in the regulation to

include any person who presents a check for payment.2 In August

2001, the OCC issued identical letters to three of the Appellee

Banks opining that the Banks were authorized under 12 C.F.R.

§7.004(a) to charge a check-cashing fee to non-account holders.

The letter expressly declined to opine as to whether Par Value

was preempted by 12 C.F.R. §7.004(a) and the NBA.

On August 17, 2001 Appellees initiated this action under a

preemption theory. The Banks sought a permanent injunction and a

declaration that Par Value was null and void. On August 31, 2001,

the district court entered a preliminary injunction followed by a

permanent injunction on December 3, 2001. The district court

found Par Value was preempted by the NBA and interpretive rule 12

C.F.R. §7.004(a), declared Par Value null and void. Appellant

appeals the district court’s determination that Par Value is

preempted.

2
The OCC offered this interpretation in interpretative
letters directed to three of the Appellee Banks: Wells Fargo,
Bank of America, and Bank One, and has continued to offer the
interpretation throughout this litigation.

4
 II.

The principal question before this Court is whether the

Texas Par Value statute stands in irreconcilable conflict with,

and is consequently preempted by, federal law.3 We conclude that

it is.

In assessing whether Par Value is preempted, our paramount

concern is to effectuate the intent of Congress. California Fed.

Sav. & Loan Ass’n v. Guerra, 479 U.S. 272, 280(1987). Generally

we have recognized three ways in which Congress evidences its

intent to preempt state law. Id. at 280-82. City of Morgan City

v. South Louisiana Elec. Co-op., 31 F.3d 319, 322 (5th Cir.

1994). Congress may reveal its preemptive intention by enacting

express language to that effect, or by occupying the regulatory

field, or, as here, by enacting a law which the state legislation

irreconcilably conflicts.4 Id. In this third instance, which is

3
A conflict between state and federal law may be deemed
“irreconcilable” where the state law mandates or places
irresistible pressure on the subject of the regulation to violate
federal law, Rice v. Norman Williams Co., 458 U.S. 654, 659 - 662
(1982), where compliance with both regulations is physically
impossible, Pacific Gas & Electric Co. v. State Energy Resources
Conservation & Dev. Comm'n, 461 U.S. 190, 204,(1983), where the
state regulation frustrates or hectors the overall purpose of the
federal scheme, City of Morgan City v. South Louisiana Elec. Co-
op., 31 F.3d 319, 322 (5th Cir. 1994), or where the federal
scheme expressly authorizes an activity which the state scheme
disallows. Barnett Bank of Marion County, v. Nelson, 517 U.S. 25
(1996).
4
There is no contention here that Congress has occupied the
banking fee regulatory field, or that the NBA expressly provides
5
the situation at hand, the intent to preempt contrary state law

is ascribed to Congress, presuming as we do, that Congress

intended to supercede those subsequent state regulations that

conflict with the letter or frustrate the purpose of the federal

regulatory scheme.

In the field of banking regulation, our conflict preemption

analysis is further refined by the Supreme Court’s holding in

Barnett Bank of Marion County, v. Nelson, 517 U.S. 25 (1996). In

Barnett Bank, the Supreme Court found that a Florida law which

forbade banks in Florida from selling insurance was preempted by

a federal statute that expressly authorized national banks to

sell insurance. Id. at 31. The Barnett Bank Court concluded that

a state statute may regulate national banks, “where...doing so

does not prevent or significantly interfere with the national

bank's exercise of its powers.” Id. at 31. Thus, where a state

statute interferes with a power which national banks are

authorized to exercise, the state statute irreconcilably

conflicts with the federal statute and is preempted by operation

of the Supremacy Clause. U.S. Const., Art. VI, cl. 2; Barnett

Bank, 517 U.S. 25, 31.

Therefore, in the case at bar, to determine whether Par

Value stands in conflict with federal law, we must first

that state regulations concerning banking fees shall be
preempted. Thus, our analysis here is focused on whether there
exists an irreconcilable conflict between the state and federal
law.
6
determine whether federal law authorizes the fee-charging which

Par Value prohibits. The Banks assert that Par Value is preempted

by the OCC promulgated regulation 12 C.F.R. §7.4002(a).5 We turn

now to consider the preemptive effect of that provision.

Section 7.4002(a) provides that a national bank may “charge

its customers non-interest charges and fees, including deposit

account service charges.” 12 C.F.R. §7.4002(a). While on its

face, the regulation would seem not to conflict with Par Value,

as Par Value prohibits a fee charged to nonaccount-holding payee,

the OCC has interpreted the word “customer” in the regulation to

mean anyone who presents a check for payment. The Banks therefore

deduce that given the OCC’s construction of “customer”,

§7.4002(a) authorizes the Banks to charge the same fee which Par

Value prohibits.6

Appellant raises two challenges to the putatively preemptive

effect of §7.4002(a). Appellant asserts that Congress did not

intend for the OCC to exercise its discretion in a manner which

would preempt Par Value. Appellant further maintains that the

5
The Banks also contend that the National Bank Act
authorizes the practice as a power incident to the general
“business of banking.” 12 U.S.C. §24 (Seventh). However, because
we find the banks’ second theory dispositive of the issue, we
need not reach the question of whether the fee-charging in
contest here is implicitly authorized by the NBA as a power
incident to the business of banking.

6
The Banks have adopted this position upon the counsel of
the OCC, which has issued to three of the Appellee Banks opinion
letters advancing this view.
7
district court erred in deferring to the OCC’s construction of

§7.4002(a). We disagree on both counts.

A. Congressional Intent

Appellant asserts that “the OCC’s ‘interpretation’ of the

NBA which would allow national banks in Texas to charge fees for

cashing on-us checks...is contrary to congressional intent.” It

is well settled that where Congress has spoken unambiguously as

to the precise question at hand, the court must give effect to

Congress’s intent regardless of whether the agency entrusted to

regulate the congressional mandate has adopted an alternate

interpretation. Chevron USA Inc. v. National Resources Defense

Counsel, Inc., 467 U.S. 837 (1984).

Appellant, however, does not argue that Congress has spoken

unambiguously as to the precise question at hand - that is,

whether the national banks are empowered to charge nonaccount-

holding payees a check-cashing fee. Instead Appellant argues that

Congress has not indicated an intention that the NBA should

supplant state laws of general application.7 In this, though,

7
Appellant also argues that the OCC’s interpretation of
§7.4002(a) contravenes congressional intent because Congress has
manifested its intent that the OCC abstain from adopting the
“field preemption” approach to state legislation which regulates
banking fees. Appellant cites the Conference Committee report on
the Riegle-Neal Interstate Banking and Efficiency Act of 1994.
H.R. Rep. No. 103-651, at 53 (1994), reprinted in 140
Cong.Rec.H6638 (1994), 1994 WL 400172. However, even assuming
arguendo that the conference committee report could potentially
serve as sufficient indicia of congressional intent with respect
8
Appellant evidences a misapprehension of the focus of our intent

inquiry here. At this stage of the preemption analysis we are

concerned with whether Congress intended to delegate to the OCC

the authority to authorize the nonaccount-holding payee check-

cashing fee, not with whether Congress intended that state law

would be preempted. As the Supreme Court has cautioned, “where

state law is claimed to be pre-empted by federal regulation, a

‘narrow focus on Congress' intent to supersede state law [is]

misdirected’... Instead the correct focus is on the federal

agency that seeks to displace state law and on the proper bounds

of its lawful authority to undertake such action." City of New

York v. F.C.C., 486 U.S. 57, 64 (1988)(quoting Louisiana Public

Service Comm'n v. F.C.C., 476 U.S. 355, 374 (1986)).

to the precise question at hand, the particular conference
committee criticism which Appellant cites was directed towards
language found in 12 C.F.R. §7.8000, a rule that preceded 12
C.F.R. §7.4002(a), and was subsequently rescinded. The
conference committee report quarreled with field preemption
language found in §7.8000, language that is not found in
§7.4002(a). To the extent the conference committee report could
reasonably be said to support a conference committee opinion on
the question of preemption and the NBA, it could only be limited
to the opinion that the conference committee disfavors field
preemption analysis when applied to state laws that conflict with
the NBA.
It is significant then that, in this instance, the Banks’
preemption claim is not based on a field preemption theory. The
Banks’ contention is that by prohibiting an activity that is
otherwise authorized by §7.4002(a), Par Value irreconcilably
conflicts with the federal regulation and is preempted by
operation of the Supremacy Clause. The Banks do not rely on the
argument that the NBA has occupied the field with respect to
banking fee regulation, and consequently Appellant’s argument
concerning congressional censure of the OCC’s erstwhile field
preemption analysis lacks relevance.
9
 Therefore, absent an unambiguous and on point directive from

Congress, we consider Congress’s intent in the context of the

preemptive effect of §7.4002(a) only insofar as we must to be

satisfied that Congress meant to delegate to the OCC the

discretionary authority embodied in that section. And while

divining the intent of Congress with respect to a point of policy

not statutorily addressed is possibly aspirational under the best

of circumstances, and particularly so where, as here,

congressional purpose must be inferred from a vague and expansive

delegation of authority to an administrative agency, we think it

plain that the OCC has been delegated the authority to determine,

with a considerable discretionary birth, whether and which fees

the national banks may assess.8 12 U.S.C. §§ 1, 26-27, 481; See,

Nations Bank of North Carolina, N.A. v. Variable Annuity Life

Ins. Co., 513 U.S. 251, 256 (1995)(noting that as the agency

charged with the supervision of the NBA, the OCC “bears primary

responsibility for surveillance of ‘the business of banking’

authorized by § 24 Seventh.”).

8
This is of course a question separate from the question of
whether Congress intended this particular fee to be authorized,
but because Congress has not spoken directly on this question, we
must leave the OCC’s discretionary determination undisturbed.
Nations Bank of North Carolina, N.A. v. Variable Annuity Life
Ins. Co., 513 U.S. 251, 813 (1995) (finding that where the NBA is
silent or ambiguous as to the precise question at hand, and when
the Comptroller of the Currency’s reading of the NBA “fills a gap
or defines a term in a way that is reasonable in light of the
legislature's design, we give the administrator's judgment
‘controlling weight’”).

10
 Appellant suggests, however, that in delegating to the OCC

the authority to regulate the national banks, Congress did not

intend to tacitly export to that agency the diverse range non-

banking policy issues that are here implicated, concerning, for

example, the negotiablity of checks, consumer protection, or even

labor compensation. Nonetheless, it is often if not always the

case that in exercising the discretion committed it by Congress,

an agency necessarily, and perhaps even inadvertently, sweeps

into its legislative reach significant policy decisions outside

its area of specific commitment. In this way, the inherent

limitations of any agency as congressional-delegatee are, in

part, illuminated: Here, the constituency positively affected by

the OCC’s position is concentrated, organized and well-funded,

and also happens to be the regulated industry. In contrast, the

constituency which is adversely affected by the decision, though

vast, is diffuse, unorganized, and definitionally ill-funded. It

may be that these competing interests could better be balanced,

as Appellant suggests, by a national Congress whose commitments

are diverse and universal, or even by the people as they are

represented in the state legislatures, than by a solitary

institution whose focus is a single industry. However, our review

here is limited to discerning whether Congress intended to

delegate this question to the OCC, not whether we think such a

delegation wise. Of course, should Congress be dissatisfied with

the OCC’s decision concerning the fee at issue here, Congress is

11
free to revisit the question with subsequent legislation.

Consequently, we find that in promulgating §7.4002(a), the OCC

has operated within the sphere delegated it by Congress.

B. Agency Deference

Finding, as we do, that in promulgating §7.4002(a), the OCC

has operated within its delegated discretion, we move next to the

question of whether the district court properly deferred to the

OCC’s interpretation of §7.4002(a). In granting summary judgment

in favor of the Banks, the district court deferred to the OCC’s

interpretation that §7.4002(a) authorizes national banks to

charge a check-cashing fee to non-account holding payees. The

district court stated that, “[t]he OCC issued opinion

letters...concluding that the National Bank Act and 12 C.F.R.

§7.4002 (a) permit national banks to charge fees to non-account

holders...the OCC is afforded deference in the interpretation of

the law under which it acts, and even greater deference in its

interpretation of its own regulations.” Wells Fargo Bank Texas,

et al. v. James, 184 F. Supp. 2d 588 (W.D. Tex. 2001). Appellant

challenges this deference determination, and thus the relevant

question before us is whether the district court was correct in

finding that OCC’s interpretation of §7.4002 (a), which is

undisputedly its own regulation, warrants deference under the

Chevron line of cases. Chevron U.S.A., Inc. v. National Res. Def.

Council, Inc., 467 U.S. 837 (1984).
12
 Auer v. Robbins offer the standard to be used where an

agency interprets its own regulation. Auer v. Robbins, 519 U.S.

452 (1997); see Christensen v. Harris County, 529 U.S. 576, 588

(2000). To determine whether Auer deference is appropriate, the

court must first consider whether the language of the regulation

is ambiguous. Id. at 588. Here, there is no contention that the

OCC’s interpretation of §7.4002(a) is contrary to the plain

meaning of the regulation. See, Id. at 588. Thus, where, as

here, the regulation is ambiguous as to the precise issue in

contest, an agency’s interpretation of its own regulation is

controlling unless it is clearly erroneous. Auer v. Robbins, 519

U.S. 452 (1997).

In the case at bar, the OCC has adopted the position that

§7.4002 (a) authorizes national banks to charge a check-cashing

fee to non-account holding payees. The regulation itself provides

that national banks, “may charge its customers non-interest

charges and fees” for authorized services. There is no dispute

that check-cashing is a service which national banks are

authorized to provide. The primary ambiguity lies in whether

non-account holding payees are “customers” for the purpose of the

regulation. The OCC interprets “customers” to include any person

who presents a check for payment. Certainly this is not the only

reasonable interpretation of §7.4002 (a), and it is perhaps not

even the most natural reading of “customer.” For example, one

might easily understand “customer” to be include primarily those
13
individuals with whom the Banks exchange services and

remunerations, rather than payees seeking payment for executory

negotiable instruments. Nevertheless, we find it neither

unwarranted nor unreasonable to define customer as anyone who

seeks payment for a check from the bank. In doing so, the payee

avails himself of the servants and services of the bank. We

conclude, therefore, that the OCC interpretation is not a clearly

erroneous interpretation, and the district court properly

deferred to it.

In sum, the OCC’s interpretation that “customer” includes

payees who present a check to a drawee bank for payment due is

controlling. Consequently, the national banks are authorized by

federal regulation 12 C.F.R. §7.4002 (a) to charge nonaccount-

holding payees a check-cashing fee. Thus, because it prohibits

the exercise of a power which federal law expressly grants the

national banks, Par Value is in irreconcilable conflict with the

federal regulatory scheme, and it is preempted by operation of

the Supremacy Clause. U.S. Const., Art. VI, cl. 2; Barnett Bank

of Marion Co. v. Nelson, 517 U.S. 25 (1996).

III.

For the foregoing reasons, the judgment of the district

court is

AFFIRMED.

14