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Letter From Superintendent Taylor to Financial Services Committee Chairman Oxley Calling for Congressional Action on OCC Preemption

March 24, 2004

Chairman Michael G. Oxley
U.S. House of Representatives
Committee on Financial Services
2308 Rayburn House Office Building
Washington, DC 20515

Dear Chairman Oxley:

I am writing you to respectfully request that you exercise your authority under the Congressional Review Act to block the recent regulations of the Office of the Comptroller of the Currency (the “OCC”) usurping state lending and deposit-taking laws and ousting state enforcement powers over all state laws, whether or not preempted, pertaining to national banks and their operating subsidiaries.  Congress has until the middle of May to reassert its legislative authority over the OCC.

If Congress fails to act, there will be adverse consequences to American consumers, state-chartered banks, state law enforcement, the dual banking system and the role of Congress itself in setting the laws that govern our nation.

I do believe that the OCC has put its finger on an issue of genuine importance to our country’s banking system. How do we reconcile the desire for uniformity of consumer laws for banks operating across state lines with the needs of consumers to have sufficient and enforceable protections in their dealings with the banks that hold their savings, pensions, mortgages and consumer debt?

Unfortunately, the way that the OCC has chosen to tackle this issue has caused a schism as deep and wide as any we have ever seen. I do believe that there are sensible solutions and answers to the legitimate questions that have been raised that can bring an end to polemics and allow us to balance our concerns within the confines of a healthy banking system that is so necessary to our country. My goal is to move the debate forward.

In the meantime, the OCC is trying to run out the clock of the Congressional Review Act by offering to talk about any concerns others may have about their new regulations. An exchange of views with someone who has already taken action is one-sided at best. And it is the Congress, not the OCC, that is empowered to resolve this issue. 

I call upon you to block these rules so that we can talk this issue through in a democratic manner in the open Congressional forum that the U.S. Constitution has provided for the creation of law.

Although the interstate banking and branching laws passed by Congress in 1994 and 1997 (Reigle-Neal I and II) were earlier Congressional responses to this question, interstate banking has evolved markedly in the ensuing decade. It is time for Congress to face this issue squarely again. The answer to the question of who must obey which laws and rules is far too important and complex to leave to a lone regulator who was appointed, not elected, to office. The OCC’s rules serve only one interest, that of national banks. Congress is the body that is entrusted to represent all interests and can pass the laws that forge necessary compromises in order to resolve questions of national interest fairly in a way that serves our country as a whole.

There are some positive things we can do to resolve this issue and ensure that our goals are met. No one has all the answers and we need to work together to be sure that our banking system remains strong. This should be a dialogue, not an argument about which regulator should win a skirmish, a battle or even the war. We need to have a discussion about how our financial system works now and how it might work better in the future.

It is important to remember that at the end of the day we all share the same goals – adopting laws or rules that promote a safe, sound dual banking system, promote innovation and a reasonable positive relationship between risk and reward, and all with appropriate and effective consumer protection.

One possible solution might be to have all such consumer protection laws passed by Congress. The federal laws would preempt related state consumer laws and would apply to all state and national banks nationwide. If this were to be done, Congress could delegate rulemaking authority to the Federal Reserve and to the Federal Deposit Insurance Corporation. Congress would direct these agencies to promulgate uniform rules, so as to eliminate any regulatory arbitrage. Rulemaking would thus be in the hands of agencies that possess significant knowledge of the industry, but have no built-in conflict in filling this role.

State banking departments (along with their co-supervisors, the Federal Reserve and the FDIC) could enforce these rules against state-chartered banks and the OCC could enforce the rules against national banks. The state attorneys general and other state law enforcement agencies would have jurisdiction to enforce these laws against all banking institutions doing business in their state, as had always been the case prior to the OCC’s assertion of visitorial supremacy. This solution makes sense if the Congress decides that uniformity of law is essential for banks that now operate across state lines and outweighs bank- and consumer-friendly advantages of past approaches to this question.

The disadvantage of this solution over the status quo that existed before the OCC’s regulations, is that previously the states served as the canary in the mineshaft, responding earlier than the national government to consumer problems and crafting solutions to fit their specific needs. As you have recognized in the area of state-regulated insurance activities, “state officials can often be more responsive to the needs of the local marketplace as well as to local consumers, and we need to make sure any move towards uniformity keeps that local flavor to insurance oversight.”

Congress has the opportunity to decide whether or not there is a national problem in the event that many states individually passed laws to deal with similar issues. While Congress has the power to legislatively preempt state-level solutions, it can also borrow successful provisions from existing and proposed state laws. In the process of weeding out what hasn’t worked, a superior national solution can be crafted. The downside of this process, of course, is if Congress doesn’t move to create a national law, the lack of uniformity across state lines persists. We see this dynamic at work in the process that has unfolded over the years in areas that affect consumer rights and protections. These include interest rates, fees, privacy, identity theft, and most recently, predatory lending.

There are other models to consider. For example, one might be to hardwire all federal and state bank consumer rules to those of the OCC. While this would produce uniformity, it could rob consumers across our country of needed protections.

Another might be to give the home states of state-chartered banks the same ability that the OCC is claiming for national banks to export its consumer laws across state lines and usurp local law enforcement. This solution might, in some cases, eliminate consumer protections and, in addition, could create a minefield of regulatory arbitrage among the OCC and each of the 50 states, which would be both harmful and baffling to the consumer.

Whatever the model finally adopted by the Congress, I urge Congress to clearly and explicitly set forth by statute that the dual banking system is just that, an interplay between to two political systems, state and federal, and that the rules and regulations of all lesser localities, such as cities, counties, school districts and the like, are preempted in favor of state-level and national laws. 

In a free and frank debate of this issue, solutions will emerge and compromises will be crafted just as they were in Reigle Neal I & II and (across financial services industries) in Gramm-Leach-Bliley.  This is the strength of our system of law in the United States and the job of our Congress.

But in order to do so, we must – until a solution is crafted – block the OCC’s regulations. I call upon you to exercise your authority to do so under the Congressional Review Act, so that we can sit down at the table and work this issue out before a wave of bank charter flips seriously wounds or destroys the dual banking system that Congress has always supported and reaffirmed.

It is my top priority to work with you to address this issue immediately.

Sincerely,

Diana L. Taylor
Superintendent of Banks

cc:  Carter K. McDowell, Chief Counsel

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