Attorney General: John P. Burke, Department of Banking, 2000-006 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

February 17, 2000

John P. Burke
Commissioner
Department of Banking
260 Constitution Plaza
Hartford, CT 06103-1800

Dear Commissioner Burke:

You have asked for our opinion as to whether Section 36a-158(a) of the Connecticut General Statutes violates the Commerce Clause of the Unites States Constitution or the Equal Protection Clauses of the state and federal constitutions as to an out-of-state state-chartered bank that wishes to establish an automated teller machine ("ATM") in this state. Based upon the analysis that follows, we believe that Conn. Gen. Stat.  36a-158a violates neither the Commerce Clause of the United States Constitution nor the Equal Protection Clauses of the state or federal constitutions as applied to an out-of-state state-chartered bank.

I. Background

Your question arrives in the following context. The Department of Banking received an inquiry from The Trust Company of New Jersey ("Trust Company"), a New Jersey-chartered bank, that has arranged with a supermarket chain to provide ATMs in the chain's stores in New Jersey, New York, and Connecticut. The Trust Company has asked you whether Connecticut's ATM statutes permit it to establish ATMs in this state.

Our legal analysis begins with Conn. Gen. Stat.  36a-158(a), the statute that addresses the establishment of ATMs by out-of-state banks:

(a) Except as provided in subsection (b) of this section, no out-of-state bank or out-of-state credit union may directly or indirectly establish or use an automated teller machine or point of sale terminal in this state. This prohibition does not apply to an out-of-state bank or out-of-state credit union that is authorized under the laws of the state or federal law to accept deposits within this state.

(Emphasis added).

An "out-of-state bank" under Connecticut's banking statutes is defined as "any institution that engages in the business of banking, but does not include a bank, Connecticut credit union, federal credit union or out-of-state credit union." Conn. Gen. Stat.  36a-2(41)(emphasis added). The term "bank" is defined under Conn. Gen. Stat.  36a-2(4) as "a Connecticut bank or a federal bank." Because the Trust Company is a New Jersey-chartered bank and is an institution that engages in the banking business, it is an "out-of-state bank" for the purposes of Conn. Gen. Stat.  36a-158(a).

We note that an out-of-state bank may establish a branch in this state with the approval of the Commissioner of Banking pursuant to Conn. Gen. Stat.  36a-412(a)(2). Conn. Gen. Stat.  36a-412(a)(4)(A) and (B), as amended by 1999 Conn. Pub. Act No. 99-158,  7, addresses what activities are permitted at a Connecticut branch of an out-of-state bank. This provision states:

(4)(A) Except as provided in this section, [. . .

(B) The] the laws of this state shall apply to any branch in this state of [a federally-chartered] an out-of-state bank to the same extent as such laws would apply if the branch were a federal bank, [. The] provided the following laws shall apply to any branch in this state of [a federally-chartered] an out-of-state bank to the same extent as such laws apply to a branch of a Connecticut bank: (i) Community reinvestment laws . . . [citations omitted], (ii) consumer protection laws . . . [citations omitted], (iii) fair lending laws . . . [citations omitted], and (iv) branching laws . . .

(B) Except as provided in this section, an out-of-state bank, other than a federally-chartered out-of-state bank, that establishes a branch in this state may conduct any activity at such branch (i) if such activity is permissible under the laws of the home state of such out-of-state bank, and (ii) to the same extent as such activity is permissible for either a Connecticut bank or a branch in this state of a federally-chartered out-of-state bank. ...

Connecticut state-chartered banks are empowered to accept deposits under Conn. Gen. Stat.  36a-250(a)(2)(A). We presume for the purposes of this opinion that the law of New Jersey permits New Jersey-chartered banks to accept deposits because the acceptance of deposits is a traditional function of the business of banking.

Thus, Conn. Gen. Stat.  36a-158(a) prohibits any out-of-state bank from establishing or using an ATM in Connecticut unless such bank is authorized under state or federal law "to accept deposits within this state." Because an out-of-state bank may accept deposits if it establishes a branch in Connecticut and if its home state permits it to accept deposits, under the statutory framework of the Connecticut Banking Law an out-of-state state chartered bank may establish an ATM in Connecticut as long as it has established a branch in this state.

Your question asks us whether the foregoing statutory framework violates the Commerce Clause of the United States Constitution or the Equal Protection Clauses of the United States or Connecticut Constitutions. We are cognizant that as to the State Constitution our analysis requires a finding that unless the statutory provisions affected are unconstitutional beyond a reasonable doubt they must stand. City Recycling, Inc. v. State, 247 Conn. 751, 758, ___ A.2d ___ (1999). And with respect to both the state and federal constitutions, we start from the presumption that Conn. Gen. Stat.  36a-158(a) is constitutional. Id.; Walters v. National Association of Radiation Survivors, 468 U.S. 1323, 1324 (1984).

II. Commerce Clause

The commerce clause is an affirmative grant of power to Congress;1 Silver v. Garcia, 760 F.2d 33, 37 (1st Cir. 1985); at the same time, it "limits the power of the States to erect barriers against interstate trade." Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 35 (1980)(hereinafter "Lewis"). The commerce clause serves to protect national power against encroachment from local governments. See, e.g., South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 92 (1984).

The Supreme Court has explained the principles for analyzing a statute under the Commerce Clause:

This limitation upon state power, of course, is by no means absolute. In the absence of conflicting federal legislation, the States retain authority under their general police powers to regulate matters of "legitimate local concern," even though interstate commerce may be affected. Where such legitimate local interests are implicated, defining the appropriate scope for state regulation is often a matter of "delicate adjustment." Yet even in regulating to protect local interests, the States generally must act in a manner consistent with the "ultimate ... principle that one state in its dealing with another may not place itself in a position of economic isolation." However important the state interest at hand, "it may not be accomplished by discriminating against articles of commerce coming from outside the State unless there is some reason, apart from their origin, to treat them differently." Over the years, the Court has used a variety of formulations for the Commerce Clause limitation upon the States, but it consistently has distinguished between outright protectionism and more indirect burdens on the free flow of trade. The Court has observed that "where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected." In contrast, legislation that visits its effects equally upon both interstate and local business may survive constitutional scrutiny if it is narrowly drawn. The Court stated in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970):

"Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. ... If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities." Id., at 142. The principal focus of inquiry must be the practical operation of the statute, since the validity of state laws must be judged chiefly in terms of their probable effects.

Lewis, 100 S.Ct. at 2015-16 (internal citations omitted)(emphasis added).

In Lewis the Supreme Court invalidated, under the Commerce Clause, Florida's statute that prohibited out-of-state bank holding companies from owning or controlling a business within the State of Florida that sells investment advisory services to any customer. Florida's statute permitted only state-chartered bank and trust companies or national banking associations located in Florida to provide investment management services. In so ruling, the Court recognized at pages 2016-17 that

"both as a matter of history and as a matter of present commercial reality, banking and related financial activities are of profound local concern. As appellees freely concede, ... sound financial institutions and honest financial practices are essential to the health of any State's economy and to the well-being of its people. Thus, it is not surprising that ever since the early days of our Republic, the States have chartered banks and have actively regulated their activities.

Nonetheless, it does not follow that these same activities lack important interstate attributes. An impressive array of federal statutes regulating not only the provision of banking services but also the formation of banking organizations, the rendering of investment advice, and the conduct of national investment markets, is substantial evidence to the contrary.

The Lewis Court concluded that Florida's statute was "'parochial' in the sense that it overtly prevents foreign enterprises from competing in local markets. The statute makes the out-of-state location of a bank holding company's principal operations an explicit barrier to the presence of an investment subsidiary within the State." Id. at 2017. The Court noted that "discrimination against affected business organizations is not evenhanded because only banks, bank holding companies, and trust companies with principal operations outside Florida are prohibited from operating investment subsidiaries or giving investment advice within the State." Id. at 2018. The Court found that

[d]iscouraging economic concentration and protecting the citizenry against fraud are undoubtedly legitimate state interests. But we are not persuaded that these interests justify the heavily disproportionate burden this statute places on bank holding companies that operate principally outside the State. Appellant has demonstrated no basis for an inference that all out-of-state bank holding companies are likely to possess the evils of monopoly power, that they are more likely to do so than their homegrown counterparts, or that they are any more inclined to engage in sharp practices than bank holding companies that are locally based. [footnote omitted] Nor is there any reason to conclude that outright prohibition of entry, rather than some intermediate form of regulation, is the only effective method of protecting against the presumed evils, particularly when other out-of-state businesses that may be just as large or far-flung are permitted to compete in the local market. We conclude that these asserted state interests simply do not suffice to eliminate  659.141(1)'s apparent constitutional defect.

Id. at 2019.

Based upon the foregoing considerations, we do not believe Conn. Gen. Stat.  36a-158(a) burdens interstate commerce. The Connecticut provision attempts to address the "profound local concern" of banking by ensuring "sound financial institutions and honest financial practices" when it allows out-of-state state-chartered banks to establish ATMs in Connecticut so long as such banks also establish a branch at which deposits are taken. This branch requirement, therefore, is not an outright prohibition2 of out-of-state state banks from the ATM business in this state; instead it is a fair "intermediate form of regulation" which "visits its effects equally upon both interstate and local business." Under Connecticut's banking law, all state-chartered banks, whether chartered in this state or any other state, must establish a branch where deposits may be accepted. Therefore, Conn. Gen. Stat.  36a-158(a) creates no more than an indirect burden on interstate trade and is permissible under the Commerce Clause.

III. Equal Protection Clause

For analysis purposes, the equal protection clause under the state constitution is given the same meaning as the equal protection clause of the Fourteenth Amendment to the United States Constitution.3 Keogh v. Bridgeport, 187 Conn. 53, 66, 444 A.2d 225 (1982). As stated in AFSCME, Council 4, Local 681, AFL-CIO V. City of West Haven, 43 Conn. Supp. 470, 499, 662 A.2d 160 (1994) aff'd 234 Conn. 217, 661 A.2d 587 (1995),

the equal protection clauses of both constitutions are analyzed by means of varying levels of judicial review according to the class of persons seeking protection or the nature of the rights they are asserting. Daly v. DelPonte, 225 Conn. 499, 512-13, 624 A.2d 876 (1993); Franklin v. Berger, supra, 211 Conn. 594-95. If the statute in question affects a "fundamental right," one which is explicitly or implicitly guaranteed by our state or federal constitution, the statute must survive "strict scrutiny," Daly v. DelPonte, supra, 513; Zapata v. Burns, 207 Conn. 496, 506, 542 A.2d 700 (1988). A statute can only survive "strict scrutiny" if it is supported by a "compelling state interest." Laden v. Warden, 169 Conn. 540, 542, 363 A.2d 1063 (1975). If the statute does not affect a fundamental right, or is not asserted by a member of a constitutionally suspect class of persons, then it must survive the so-called "rational basis test." Daly v. DelPonte, supra, 513. A statute survives the rational basis test if the disparate treatment inherent in the statute bears arational relationship to a legitimate state goal and is based on reasons related to the accomplishment of that goal. Franklin v. Berger, supra, 595; Zapata v. Burns, supra, 496.

(Emphasis added).

The burden of proving Conn. Gen. Stat.  36a-158a violates the equal protection clause is upon the challenger, and here it would be the out-of-state bank. AFSCME, SUPRA AT 502. Absent a showing of a violation of a fundamental constitutional right or the existence of a constitutionally suspect class of persons, that burden cannot be met unless the claimant can "negative every conceivable [rational] basis which might support [the statute]." State Management Assn. of Connecticut v. O'Neill, 204 Conn. 746, 754, 529 A.2d 1276 (1987)(internal quotation marks omitted).

The right to establish an ATM in Connecticut is not a fundamental constitutional right. A banking institution is not a member of a suspect class for purposes of Equal Protection Clause analysis.4 Conn. Gen. Stat. 36a-158(a), therefore, must be held constitutional if there is any rational basis which might support it.

We recognize several rational bases for requiring a bank to accept deposits in this state before it may establish an ATM here. These bases all emanate from the special nature of the banking industry. "Banking is one of the longest regulated and most closely supervised of public callings." Fahey v. Mallonee, 332 U.S. 245, 250 (1947); see also United States v. Chuang, 897 F.2d 646, 651 (2d Cir. 1990)(recognizing "the heavily regulated nature of the banking industry"). Because banks are an integral component of a State's economy and a major source of credit and investment in a community, the State takes a major interest in ensuring that they are solvent and responsive to the public. For example, a financial institution doing business in this state must serve the community. See e.g., Community Reinvestment Act of 1977, 12 U.S.C.  2901 et seq. (1999). Therefore, banking, as an industry, is highly regulated. Thus, if bank deposits are accepted in this State, the Banking Commissioner should be able to examine the bank taking the deposits to ensure its solvency for the protection of the consumers using such bank.

The statutory requirement to accept deposits at a Connecticut branch benefits consumers by providing them with the same full banking services at the branch of the out-of-state state-chartered bank as they can obtain at a Connecticut-chartered bank. Furthermore, consumers will have the same direct access to the out-of-state state-chartered bank, just as they have with a Connecticut-chartered bank. This is especially relevant in the event that there is a problem with a deposit or a cash withdrawal from an ATM. Having a branch in the State will clearly facilitate the resolution of consumer problems relating to an ATM of the out-of-state state-chartered bank located in this state.

In adopting the ATM bill which became codified as  36a-155 to 36a-159, inclusive, the floor debates indicate that a major intent of the bill was to protect state-chartered banks that, up until that time, could not establish or operate ATMs or participate in the then limited ATM networks of national banks. 18 Conn. H.R. Proc. Pt. 10, 1975 Sess., pp. 4868-69; Joint Committee, Banks, March 25, 1975, at 211, 215-16, 226. Hence, the requirement in  36a-158(a) that an out-of-state state-chartered bank may establish and use ATMs within Connecticut only if it is authorized to accept deposits in this State, is also rationally related to protecting in-state-chartered banks from unfair competition by out-of-state state-chartered banks which have no other presence in this state. An out-of-state state-chartered bank with only an ATM established in this State, with no presence here through a brick and mortar branch, would go unregulated. By requiring an out-of-state state-chartered bank to accept deposits here through the establishment of a branch, all banks doing business in the state are placed on an equal footing and consumers are protected through regulation and examination by the State Banking Commissioner.

Thus, all of the above are rational reasons for requiring an out-of-state state-chartered bank to accept deposits through the establishment of a branch in this state before it may establish an ATM here.

IV. Conclusion

Based upon the foregoing analysis, we conclude that Conn. Gen. Stat.  36a-158(a) survives scrutiny under the Commerce Clause of the United States Constitution and the Equal Protection Clauses of the state and federal constitutions as applied to an out-of-state state-chartered bank.

Very truly yours,

RICHARD BLUMENTHAL
ATTORNEY GENERAL

William J. Prensky
Assistant Attorney General

RB/WJP/db


1 The Commerce Clause, U.S. Const., Art. 1,  8, cl. 3, provides in relevant part: "The Congress shall have Power . . . To regulate Commerce with foreign Nations, and among the Several States, and with the Indian Tribes; ... (emphasis added)."

2 On the other hand, the Florida statute in Lewis created an outright prohibition on out-of-state bank holding companies from owning companies that sell investment advisory services in Florida.

3 The two clauses are, respectively, Conn. Const., Art. First,  20 and U.S. Const., Amend. XIV,  1. The former states: "No person shall be denied the equal protection of the law...." The latter provision states: "... No State shall ... deny to any person within its jurisdiction the equal protection of the laws."

4 Suspect classifications include those such as race, alienage, gender, or national origin. Knapp v. Hanson, 183 F.3d 786, 789 (8th Cir. 1999).


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