BANKS AND BANKING ‑- MORTGAGES ‑- FINANCIAL DISCLOSURE BY FEDERALLY CHARTERED FINANCIAL INSTITUTIONS
Those national banks, federal savings and loan associations and federal credit unions which do business within the state of Washington are required to file annual reports of their financial affairs with the Secretary of State in accordance with the provisions of §§ 1-9, chapter 301, Laws of 1977, 1st Ex. Sess.
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February 14, 1978
Honorable Bruce Chapman
Secretary of State
Olympia, Washington 98504 Cite as: AGLO 1978 No. 2
This is written in response to your request, previously acknowledged, for our opinion regarding the applicability of the new state financial institutions disclosure act, as contained in chapter 301, Laws of 1977, 1st Ex. Sess., to federally chartered or regulated financial institutions. We paraphrase your question as follows:
Are national banks, federal savings and loan associations and federal credit unions which do business within the State of Washington required to file annual reports of their financial affairs with the Secretary of State in accordance with the provisions of §§ 1-9, chapter 301, Laws of 1977, 1st Ex. Sess.?
We answer this question in the affirmative for the reasons set forth in our analysis.
[[Orig. Op. Page 2]] ANALYSIS
Chapter 301, Laws of 1977, 1st Ex. Sess. addresses an alleged practice of lending institutions known as "red lining." This is the alleged practice of a financial institution not making loans in certain neighborhoods or geographic areas because those areas are old, or are predominantly inhabited by racial minorities or the poor and, hence, are thought to be on the decline. The practice is of public concern because if mortgage money is unavailable the neighborhood will, in fact, decline. Red lining (also called "disinvestment") is thought to be an important factor in the decline of our central cities.1/
The new Washington law, chapter 301,supra, both prohibits red lining and requires lending institutions to file reports of statistics that would indicate whether red lining is being practiced. The Washington legislature evidently concluded that this combination would prevent the continued practice of red lining or, in any event, would expose the existence of red lining to those who can enforce the law.
There can be no question but that our state legislature intended both portions of the new law to apply equally to both state and federally chartered financial institutions.2/ Thus, in § 2 (now codified as RCW 19.106.020) and § 11 (now RCW 30.04.505) it defined the term "financial institution" to mean
". . . any bank or trust company, mutual savings bank, savings and loan association or credit union which operates or has a place of business in this statewhether or not regulated by the state or federal government. . . ." (Emphasis supplied)
[[Orig. Op. Page 3]] Your concern, therefore, is not with the scope of the state law, per se. Rather, it is with the enforceability of the financial disclosure requirements of the state law against federally chartered financial institutions in view of certain arguments to the contrary which you have received relating to federal preemption. The basic thrust of those arguments, as they have been principally outlined in a letter dated July 22, 1977, from Daniel J. Goldberg, Acting General Counsel, Federal Home Loan Bank Board to Robert L. Shults, President, Washington Savings League, is that the federal congress has entirely preempted the regulation of those financial institutions or, in any event, that it has at least done so in the area of financial disclosure related to red lining by its enactment of the Home Mortgage Disclosure Act of 1975, Title III, PL 94-200, now codified as 12 U.S.C. §§ 2801-2809.
Since our receipt of your letter last fall, we have devoted a considerable amount of time and effort to the conduct of a thorough analysis of the foregoing arguments. However, while we have found them, indeed, interesting we have nevertheless concluded that they are not sufficiently persuasive to compel us to answer your question in the negative in spite of the express intent of our own state legislature to the contrary. Clearly, there is no express federal preemption in the above‑cited federal enactment (or in any other federal law that we have discovered) which bars the enforcement of state laws such as ours against federally chartered financial institutions. Thus, at best, what the proponents of federal preemption offer in this case is a theory of preemption by implication ‑ arising, primarily, from the legislative history of PL 94-220, supra.3/ However, without here going into the details, our own view of the same history is that it is, at best, inconclusive. Moreover, [[Orig. Op. Page 4]] in view of the most recent pronouncement by the United States Supreme Court with regard to the general question of federal preemption of state regulatory authority we are simply disinclined at this time to accept a theory of preemption based only on legislative history. We have reference toDe Canas v. Bica, 424 U.S. 351, 47 L.Ed. 2d 43, 96 S.Ct. 933 (1976) in which the court (at pp. 356-7) stated the rule as follows:
"Federal regulation . . . should not be deemed preemptive of state regulatory power in the absence of persuasive reasons‑-either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.
". . .
". . . Only a demonstration that complete ouster of state power‑-including state power to promulgate laws not in conflict with federal laws‑-was 'the clear and manifest purpose of Congress' would justify that conclusion. . . ." (Emphasis supplied)
No such clear indication of congressional intent appears here. On the other hand, as above stated, what we do have in this case is a clear, express and unequivocal manifestation of the intent of our own state legislature. That intent, as set forth in the definition of "financial institutions" in § 2 of the state act,supra, is to require the filing of financial disclosure reports with your office by every such institution doing business within this state ". . . whether or not regulated by the state or federal government. . . ." Therefore, we believe that there is only one proper role for us to take in connection with this matter. That rule, briefly stated, is to accept the state law as written and proceed to enforce it, fully, in the courts, if necessary, in the face of whatever arguments may be lodged against it. We further note particularly, in that regard, the following text of § 6(1) of the state act:
"(1) An institution which is required to file statements by this chapter and which fails to submit a statement on the date required in section 3 of this amendatory act, is guilty of a business offense and shall be fined five hundred [[Orig. Op. Page 5]] dollars or one hundred dollars for each day on which the statement has not been filed after the required date, whichever is greater. The secretary of state shall refer any violation of this subsection to the attorney general for enforcement." (Emphasis supplied)
For the above‑stated reasons we are, at this time, prepared to proceed accordingly. We trust that this will be of assistance to you.
Very truly yours,
PHILIP H. AUSTIN
Deputy Attorney General
*** FOOTNOTES ***
1/The name derives from the story that some lending institutions drew lines in red ink on their maps around the shunned areas. See, generally, Patterns of Residential Lending and Property Sales in Seattle, 1974, 1975, 1976, Preliminary Report of the Redlining Task Force to the Washington State Human Rights Commission, 31 January, 1977; L.D. Ryan, Banking Law, Redlining, 1977 Annual Survey of American Law 57; United States Senate Report 94-187.
2/For convenience in this opinion we use the term "the federally chartered financial institutions" to refer to national banks, federal savings and loan associations, and federal credit unions. There are also other types of federally chartered financial institutions but they are not covered by the state disclosure act. See §§ 2 and 11, intra. There are no federally chartered mutual savings banks.
3/In addition, Mr. Goldberg in his letter, supra, has cited (without elaboration) a number of cases for the broad proposition that federally chartered savings and loan associations areexclusively regulated and supervised by the federal home loan bank board and governed solely by federal statutory, regulatory or common law provisions with respect to their internal operations and the terms of their mortgage instruments. See, among others,People. Etc. v. Coast Federal Sav. & Loan Ass'n, supra, 98 F.Supp. 311 (1951), Meyers v. Beverly Hills Federal Savings & Loan Ass'n, 499 F.2d 1145 (1974) and Kaski v. First Fed. S. & L. Asso. of Madison, 72 Wis.2d 132, 240 N.W.2d 367 (1974). In our considered judgment, however, none of those cases are supportive of the broad conclusion for which they have thus been cited.