The New York Bankers Association filed a complaint Tuesday seeking to invalidate “Local Law 38,” which calls for the creation of a Community Investment Advisory Board (the “CAIB”) to gather information about banks that take deposits from the City and to establish “best practices” for those banks regarding various initiatives, including (for example) offering financial services most needed by low and moderate income individuals. The New York Bankers Association brought a similar challenge last year, but Judge Failla dismissed the case without prejudice, largely because then-Mayor Bloomberg did not enforce it.  The renewed complaint argues that the CAIB is up and running and that its regulation is preempted by state and federal banking laws:

As the text of Local Law 38 and its legislative history make clear, the City Council enacted this law—over former Mayor Michael Bloomberg’s veto—because the City Council was convinced that federal laws promoting community development were unsatisfactory, and that the City needed to step in and regulate the activities of Deposit Banks in, among other things, providing “credit, financial and banking services needs throughout the City with a particular emphasis on low and moderate income individuals and communities.” In passing Local Law 38, the City Council ignored objections from the Department of Finance, the New York State Department of Financial Services (“DFS”) (and its predecessor, the New York State Banking Department (“NYSBD”)), Mayor Bloomberg, and NYBA, all of whom pointed to multiple deficiencies, both legal and practical, with respect to Local Law 38, including that existing federal and State banking laws preempted this proposed law. Specifically, Local Law 38 violates the clear prohibition in federal law on local regulation of federally chartered depository institutions, which bars local laws and regulations, such as Local Law 38, that empower local authorities to collect information from, and supervise the banking activities of, such institutions. Local Law 38 conflicts with Congress’s grant to the Office of the Comptroller of the Currency (“OCC”) of sole “visitorial powers” (i.e., powers to regulate through examination and supervision) over federal depository institutions and of the OCC’s sole authority to determine how such banks may exercise their statutory banking powers. Local Law 38 also conflicts with the federal Community Reinvestment Act (“Federal CRA”) by imposing obligations on Deposit Banks above and beyond those contemplated by the Federal CRA, upsetting its balance between encouraging community development and burdening banks with excessive and patchwork regulation. Under the doctrine of “conflict preemption,” any state or local law that conflicts with a valid federal statute or regulation is preempted. Accordingly, federal law preempts Local Law 38 as applied to national banks and federal savings associations.

The case is before Judge Failla.