Why a 160-Year-Old Banking Law Gives National Banks a Massive AI Advantage

As state governments rush to regulate artificial intelligence, a legal battleground is forming over how these rules apply to the financial sector. However, federally chartered institutions may have a secret weapon that shields them from a complex patchwork of state laws: the National Bank Act of 1864.

The Office of the Comptroller of the Currency (OCC) has a long history of protecting federal preemption—the principle that federal law overrides state regulations when they interfere with a national bank’s operations. Under new leadership and a federal push for uniform AI standards, this Civil War-era framework is poised to grant national banks a significant operational edge over their state-chartered competitors.

The Fragmented State AI Landscape

Without a unified federal law, states are moving quickly to establish their own guardrails for artificial intelligence. This has created a highly fragmented compliance landscape for financial institutions:

• Illinois: Has classified AI-driven hiring and employment decisions as potential civil rights violations.
• Texas: Restricts specific types of AI deployment, backed by heavy financial penalties of up to $200,000.
• Colorado: The comprehensive AI Act, set to take effect on June 30, 2026, imposes strict requirements on any business using “high-risk” AI systems.
• California: Has passed dozens of individual AI-related bills over the last two legislative sessions, with more rules on the horizon.

For financial institutions operating across state lines, navigating this regulatory maze is incredibly costly and complex. This is where the power of federal preemption comes into play.

The Historic Shield of Federal Preemption

National banks operate under a federal charter, meaning they are governed by federal standards rather than a balkanized network of 50 different state regulators. The foundational legal precedent for this is the 1996 U.S. Supreme Court case Barnett Bank v. Nelson, which ruled that state laws are preempted if they “prevent or significantly interfere” with a national bank’s ability to exercise its federally granted powers.

Current OCC leadership has signaled a strong intent to apply this standard aggressively to state-level AI regulations. Comptroller Jonathan Gould has made federal preemption a core priority, outlining a strategy focused on filing supportive briefs in court, updating Treasury regulations, and building industry consensus.

This pro-preemption stance aligns with a December 2025 executive order aimed at creating a cohesive federal framework for AI and challenging inconsistent state mandates. While federal court battles can drag on for years, the OCC can use its rulemaking authority to provide national banks with rapid clarity.

A Proven Regulatory Playbook

We have already seen this strategy in action. When Illinois passed the Interchange Fee Prohibition Act (IFPA)—which blocked banks from charging interchange fees on taxes and tips—the OCC stepped in. The regulator filed amicus briefs, issued a formal preemption determination, and amended its own rules to clarify that the state law did not apply to national banks. A federal court ultimately agreed, demonstrating how effectively the OCC can protect federal authority.

Categorical vs. Case-by-Case Preemption

To determine how state AI laws will be handled, the OCC must answer a critical procedural question: Are these regulations considered “state consumer financial laws” under federal statute (12 U.S.C. § 25b)?

• If Yes: The OCC must evaluate laws on a case-by-case basis, subject to periodic reviews, while state attorneys general retain concurrent enforcement power. This applies to consumer-facing rules, such as Utah’s AI disclosure laws and Colorado’s consumer appeal rights.
• If No: The OCC can make sweeping, categorical preemption determinations. Operational regulations, like the Texas restrictions on underlying AI architectures or California’s rules for frontier AI developers, do not directly regulate the terms of a consumer financial transaction and are prime candidates for broad preemption.

Predicting What the OCC Will Preempt

Not all state AI laws will receive the same treatment. The likelihood of preemption depends heavily on how closely the state law touches core banking powers:

1. High Probability of Preemption: Credit Underwriting

Lending is a fundamental power of national banks. State laws that restrict model inputs, mandate explainability standards that machine learning models cannot support, or require human intervention in automated underwriting directly interfere with this power. The OCC is highly likely to preempt these rules to maintain a uniform lending market.

2. Low Probability of Preemption: Employment AI

National banks must generally comply with state labor laws, including anti-discrimination and wage statutes. State rules targeting AI biases in hiring (like those in Illinois) are viewed as civil rights protections rather than banking regulations. The OCC is unlikely to challenge these laws.

3. Moderate Probability: Disclosure Mandates

State laws requiring banks to disclose when they use AI present a gray area. Rather than preempting these outright, the federal government is more likely to establish a uniform federal disclosure standard first, making any differing state requirements subject to conflict preemption.

Can AI Agents Legally Bind National Banks?

An emerging frontier in banking law is whether autonomous AI “agents” can legally bind financial institutions. The National Bank Act allows banks to exercise their powers through “duly authorized officers or agents,” without explicitly requiring those agents to be human. OCC regulations also allow banks to deliver services through electronic facilities.

If the OCC formally recognizes AI agents as legal extensions of a bank, the preemption impact would be massive. Any state law restricting the deployment of these AI agents would directly interfere with a federal banking power, triggering federal protection. Additionally, under the federal E-SIGN Act, contracts formed by automated “electronic agents” are valid as long as their actions are legally attributable to the bank—a gap the OCC is well-positioned to fill.

The Future of the Dual Banking System

These regulatory dynamics are poised to reshape the choice of banking charters. Just as national banks historically enjoyed an advantage by being able to export interest rates nationwide regardless of individual state caps, they may soon enjoy a similar structural advantage with AI.

For technology-forward financial institutions and fintech firms looking to partner with banks, a national charter is increasingly becoming the most viable path to scaling innovative AI systems without the burden of 50 different compliance frameworks. In the digital age, the oldest banking laws in the nation may provide the very foundation for the future of finance.

Source: thefinancialbrand.com