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President Obama Issues Broad Restrictions on Preemption of State Law

On May 20, 2009, President Obama issued a memo that places broad restrictions on federal departments and agencies regarding actions to preempt state law. The...
May 22, 2009

On May 20, 2009, President Obama issued a memo that places broad restrictions on federal departments and agencies regarding actions to preempt state law. The memo states, in part:

"The purpose of this memorandum is to state the general policy
of my Administration that preemption of State law by executive
departments and agencies should be undertaken only with full
consideration of the legitimate prerogatives of the States and
with a sufficient legal basis for preemption. Executive
departments and agencies should be mindful that in our Federal
system, the citizens of the several States have distinctive
circumstances and values, and that in many instances it is
appropriate for them to apply to themselves rules and principles
that reflect these circumstances and values."

The Presidential memo also says:

"An understanding of the important role of State governments in
our Federal system is reflected in longstanding practices by
executive departments and agencies, which have shown respect
for the traditional prerogatives of the States. In recent years,
however, notwithstanding Executive Order 13132 of August 4, 1999
(Federalism), executive departments and agencies have sometimes
announced that their regulations preempt State law, including
State common law, without explicit preemption by the Congress or
an otherwise sufficient basis under applicable legal principles.

"…executive departments and agencies [should] include
statements of preemption in regulations only when such statements
have a sufficient legal basis ... As Justice Brandeis
explained more than 70 years ago, "[i]t is one of the happy
incidents of the federal system that a single courageous state
may, if its citizens choose, serve as a laboratory; and try novel
social and economic experiments without risk to the rest of the
country."

What It Means to Agents:  Since 1999, various federal agencies have adopted regulations that declare certain state laws to be null and void, trumped by the agencies' interpretation of federal law. This is often done absent any specific action by Congress, or and clear authorization in the existing federal laws. The Office of the Comptroller of the Currency (OCC) is notorious for declaring state insurance laws preempted by federal banking laws.

The specific reason for President Obama's broad, sweeping directive reining in preemption of state laws by federal agencies is not yet known - but it is very welcome. PIA along with those who have always defended state regulation have been vocal throughout the years in opposing the regulatory overreach of the OCC. This memo indicates that the President of the United States agrees, and has now taken a step to restrain such overreach.

However, PIA remains on watch for federal moves to restructure the federal oversight of financial services industry, and in doing so restructure the role and relationship of this new federal system to state law and state oversight systems.