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Banking Department Comment Letter to the Office of the Comptroller of the Currency 
Regarding the Notice of Proposed Rulemaking No. 03-16 
Pertaining to Federal Preemption of State Anti-Predatory Lending Laws

October 1, 2003

The Honorable John D. Hawke, Jr.
Comptroller of the Currency
Office of the Comptroller of the Currency
250 E Street, S.W.
Public Information Room, Mailstop 1-5
Attention:  Docket No. 03-02
Washington, DC 20219 

RE:    OCC Docket No. 03-16 – Notice of Proposed Rulemaking, 68 Fed. Reg. 46119, 2003.

Dear Comptroller Hawke:

The New York State Banking Department (the “Banking Department” or the “Department”) appreciates this opportunity to comment on the Notice of Proposed Rulemaking, Docket No. 03-16, which was published by the Office of the Comptroller of the Currency (“OCC”) at 68 Fed. Reg. 46119, 2003.

The Banking Department is aware of and fully supports the comment letter submitted by the Conference of State Bank Supervisors (“CSBS”) and along with CSBS requests that the OCC withdraw its proposed rulemaking both on the basis of strong public policy questions and significant legal authority questions.

The proposal would preempt virtually all state banking and financial services laws for national banks and their diverse range of non-bank, corporate operating subsidiaries.  These operating subsidiaries include entities such as residential mortgage bankers, licensed lenders, sales finance companies, leasing companies, title companies and check cashing companies.  The OCC is also seeking to bar state bank regulators from exercising visitorial and enforcement powers over these operating subsidiaries while at the same time barring law enforcement officials from both national banks and their operating subsidiaries.  

This proposal raises important public policy questions.  At its most basic, we must address the issue of whether such a sweeping change should be made by one federal regulator or whether it should be made, if at all, by the United States Congress after a full public debate on the issues involved.  Ultimately this is a question of whether state legislatures and governors should have a voice in the regulation of financial transactions that take place in their states.  At a minimum, Congressional oversight is required before the laws of fifty states are preempted by one federal regulator.

In addition to this fundamental public policy issue, there is the equally important matter of consumer protection.  Should the proposed rulemaking become final, there will be an enormous gap between the protections currently afforded to consumers and the situation that will exist once preemption has occurred.  Consumers will be more vulnerable to individuals and entities in the financial services industry that may engage in fraud, deceptive practices and/or predatory or abusive lending practices.  The value to consumers provided by state banking agencies is clear.  In 2002 alone, in New York State, the Department was responsible for mortgage bankers returning over $4.3 million in restitution to borrowers. And, in 2003, New York consumers will receive $37 million from the Household settlement in addition to all other restitution as part of the $484 million nationwide settlement. 

The Comptroller cannot match the resources of state banking departments, consumer credit divisions and offices of state attorneys general that are currently working to identify fraud and abusive practices.  Instead, the OCC has indicated that it will rely on an otherwise fully engaged staff of national bank examiners and a limited staff of OCC employees (fewer than 50 in a Customer Assistance Group) that respond to complaints from consumers nationwide.  In contrast, in New York alone, the Banking Department has eight full-time examiners and between two and four part-time students reviewing, investigating and responding to consumer complaints.

In addition to the issues set forth above, the proposal also threatens a key element in the success of our nation’s economy – the strength of our dual banking system.  By preempting state consumer protection laws and state regulators, the OCC seeks to become the regulator of virtually all mid-sized and large banks in this country that operate in a multi state environment.   Should this be accomplished, there will be an unhealthy concentration of regulatory power in the hands of a single individual.  This one individual will have enormous influence over the nation’s banking system and economic health with virtually no direct congressional oversight.  Problems or scandals that may emerge from national banks or their operating subsidiaries would be compounded by having a regulator with insufficient resources to prevent, mitigate or resolve them before they become nationwide in scope and damage.  In such a situation, Congress may be compelled to act in a manner that generally applies new standards, with costly compliance price tags, to all depository institutions.

Moreover, it should be emphasized that no case has been made to do away with state laws and oversight by state banking regulators and law enforcement officials.  America’s 9,000+ banks have earned record profits even during the recent economic slowdown, with the most recent quarter reaching a record high of $30 billion.

Our nation’s banking system, which allows banks to choose a state charter or national charter, contributes to the health of our economy.  Unlike Europe, Canada, and in other developed countries, the dual banking system has guided the development of a decentralized banking market where banks of widely different sizes efficiently disperse credit to all sectors of the US economy.  Our existing, dual banking system serves the diverse needs of small businesses, large businesses, and consumers in local, regional and national markets.  Choice among charters serves as an important check and balance system that ensures the regulatory approaches at both the state and federal levels are reasonable.  The strength of the dual banking system should not be jeopardized in favor of a proposal that would tilt this critical balance to federalization of our nation’s banking system. 

In addition to the public policy issues set forth above, the Department believes that there is no legal authority for the concept of “field preemption” for national banks and their operating subsidiaries.  Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996).  Similarly, we are of the opinion that there is no legal authority to exclude the states from licensing, examining and otherwise regulating and enforcing their laws with respect to state-chartered corporations that are subsidiaries of national banks.

In conclusion, for the reasons set forth above and in the comment letter submitted by CSBS, we respectfully request that the proposal be withdrawn.  We believe that it will be beneficial for all parties if a thorough public review takes place to fully understand the potentially far-reaching implications that would result from such a dramatic change to the nation’s banking system.  We believe such a review would result in the rejection of the proposal.

Thank you for this opportunity to comment on the proposed rulemaking.  The Banking Department would be pleased to meet with you and your staff in an effort to resolve the issues and concerns referred to above.

Very truly yours,

Diana L. Taylor
Superintendent of Banks

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