In Wells Fargo Bank, N.A., v. Boutris, the U.S. District Court for the Eastern District of California preliminarily enjoined the Commissioner of the California Department of Corporations (Commissioner) from exercising visitorial powers over Wells Fargo Home Mortgage, Inc. (WFHMI), a wholly-owned operating subsidiary of Wells Fargo Bank, N.A., a national bank. The court determined that the defendants had shown probable success on the merits of their claim that the National Bank Act (NBA) preempts the state Commissioner’s authority over WFHMI as an operating subsidiary.

    WFHMI initially operated under a license to engage in real estate lending under California law. In December, 2002, the Commissioner demanded that WFHMI conduct an audit of its residential mortgage loans made in California during 2001 and 2002 in order to identify the loans in which the interest charged violated California law. WFHMI and Wells Fargo Bank, N.A. objected and filed suit. The Commissioner subsequently instituted proceedings to revoke WFHMI’s state licenses.

    Plaintiffs argued that the NBA grants the Office of the Comptroller of the Currency (OCC) exclusive authority to exercise visitorial powers over national banks as well as their operating subsidiaries. Therefore, plaintiffs argued, the state Commissioner had no authority to examine or regulate WFHMI. In addition, although plaintiffs moved to enjoin the Commissioner from revoking WFHMI’s license, they also argued that under the NBA WFHMI is not required to hold a license under California law to engage in mortgage lending in California. The OCC filed an amicus brief supporting plaintiffs’ position.

    The court found that plaintiffs showed “probable success on the merits of their claim that WFHMI is a wholly-owned operating subsidiary of Wells Fargo licensed by the OCC to engage in real estate lending activities in California” and therefore, the NBA preempts the Commissioner’s authority to prohibit WFHMI from lending in California and from exercising visitorial powers. However, the court denied plaintiffs’ motion for preliminary injunction against revoking WFHMI’s license, saying that it was “unclear why WFHMI subjected itself to the Commissioner’s regulatory authority by virtue of having become a California licensee.”

    Jeff Langer and Deborah Freye