Posted by: Patricia Salkin | April 24, 2012

NY Appellate Court Invalidates Local Zoning Ordinance Regulating Check-Cashing Establishments Finding Preemption by State Banking Law

The Town of Hempstead amended their zoning ordinance to prohibit check-cashing establishments in any districts other than industrial and light manufacturing districts. Preexisting check-cashing establishments located in districts where such establishments where prohibited were required to terminate by amortization no later than five years after the effective date of the new law. Operators of check-cashing establishments in the Town’s business lleged, among other things, that the zoning amendment was preempted by New York State Banking Law, contending that state law, “sets forth a detailed and comprehensive regulatory scheme that evinced the State’s intent to reserve the field of banking for State oversight and control.” The trial court granted summary judgment for the Town and the appellate court reversed.

The Appellate Court held that the zoning amendment conflicted with, and thus was preempted by, state Banking Law.  The court explained that although local governments have broad police powers relating to the welfare of their citizens, local governments cannot adopt laws that are inconsistent with the Constitution or with any general law of the state. Thus, the power of local governments to enact laws is subject to the fundamental limitation of the preemption doctrine. Generally, state preemption occurs either: (1) under conflict preemption, where a local law prohibits what a state law explicitly allows, or when a state law prohibits what a local law explicitly allows; or (2) under field preemption, where “a local law regulating the same subject matter [as a state law] is deemed inconsistent with the State’s transcendent interest, whether or not the terms of the local law actually conflict with a State-wide statute.” Field preemption, further explained the court, can apply under any of three different scenarios: (1) when an “express statement in the state statute explicitly avers that it preempts all local laws on the same subject matter”; (2) where a “declaration of state policy evinces the intent of the Legislature to preempt local laws on the same subject matter”; or (3) where the “Legislature’s enactment of a comprehensive and detailed regulatory scheme in an area in controversy is deemed to demonstrate an intent to preempt local laws.”

To determine whether the amendment was preempted by state law, the court examined certain provisions of the Banking Law. Article 9-A of the Banking Law pertaining to “Licensed Cashers of Checks” explicitly granted the superintendent of banks (the “Superintendent”) the authority to “provide for the regulation of the business of cashing checks. Section 369 of the Banking Law addressed conditions precedent to the issuance of a license. Under Section 369(l), those seeking to obtain a license to cash checks had to submit a “business plan,” which had to include: a description of the primary market area; a description of the customer base; proposed days and hours of operation; types of services to be offered; a detailed description of demographics of the area; a description of any proposed economic development area; and specific marketing targets. The court found that, under the clear language of Banking Law § 369(1), the Superintendent was vested with the duty to determine: whether each applicant for a check-cashing license proposes to perform that function in an appropriate location; whether there was is a community need for a new licensee in that location; and whether the granting of such an application will be advantageous to the public. Thus, the court concluded that the legislature had specifically delegated to the Superintendent the task of determining whether particular locations were appropriate for check-cashing establishments.

Since the Court found that the Town had “necessarily determined that, in its estimation, the Town’s business district [was] not an appropriate location for check-cashing establishments, and that such establishments [were] only appropriate in the Town’s industrial and light manufacturing districts,” the court concluded that the Town’s attempt to control the determination of the appropriate locations of these establishments  was in conflict with Banking Law § 369(1) and that it had more than a tangential impact on the relevant Banking Law provisions. Therefore, the zoning amendment purported to accomplish the same function delegated by the legislature to the Superintendent in making a determination as to the appropriate location for check-cashing establishments, thereby divesting the Superintendent of that authority. The court concluded that the local law was invalid based on the doctrine of conflict preemption.

Sunrise Check Cashing and Payroll Services, Inc. v Town of Hempstead, 91 A.D. 3d 126, 933 N.Y.S. 2d 388 (2 Dept. 11/29/2011).                

This abstract is based on one appearing in 6 No. 1 Quinlan, Zoning Bulletin art. 4 (January 2011).


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