Skip to content
Ralph Nader > In the Public Interest > New Rules Publication on Banking

States rights used to be the rallying cry for corporations, segregationists, and an assortment of special interests determined to blunt federal initiatives, particularly in the arena of regulation. Many state legislatures were underfunded, poorly staffed and were in session only for a few weeks or months, some meeting only biennially.

As a result, corporate lobbyists had a free run and, in effect, owned many of the legislative bodies. It was no wonder that the lobbyists became so adept at running up the flag of “states rights” whenever the Congress looked like it might enact federal legislation that would protect consumers or curb the excesses of the special interests.
But, today the balance is shifting in some states where legislatures — now better funded and operating with professional staffs — are taking the lead in proposing and enacting a number of consumer protections. Suddenly, the corporate lobbyists who talked so eloquently about states’ rights only a few years ago are beating the drums for federal legislative dominance and insisting that state consumer initiatives be preempted by weaker provisions enacted by the Congress — in effect, giving the corporations a center for “one-stop injustice.”

A major lobbying battle, for example, is being waged in the Financial Services Committee of the U. S. House of Representatives where the Rent-to-Own industry is seeking to have Congress pass a weak regulatory
bill which would preempt state laws that provide protections for consumers against usurious interest rates and unfair practices — many transactions carrying interest rates of 200 to 300 percent on an annual

At least five states — Minnesota, Wisconsin, New Jersey, Vermont and North Carolina — have strong state laws governing rent-to-own contracts and have been aggressive in attacking predatory practices by rent-to-own firms. But these laws would be preempted–wiped out?if the federal legislation is enacted. Fifty-two state and territorial attorneys general have signed a letter to Congress protesting the effort to wipe out state protections.

Senator Paul Sarbanes of Maryland, who has recently become chairman of the Senate Banking Committee, has an opportunity to put his professed support for consumers into action by leading the charge against the preemption. It will be an early test of his new chairmanship.

Not only does the Congress increasingly insert preemption language in federal legislation, but federal regulatory agencies — especially the financial ones — use their powers to wipe out grass roots initiatives in
the states and local communities.

In 1991, New Jersey enacted legislation which would require all banks operating in the state to provide basic, low-cost checking accounts for low-income citizens lacking banking services.

Before the law went into effect, the Office of the Comptroller of the Currency (OCC) ruled that the National Banking Act preempted the New Jersey statute and authorized national banks to ignore the law. The preemption of the New Jersey law has chilled efforts by other states to enact legislation to help their citizens obtain banking services.

Local ordinances, as well as state legislative measures, have been targeted for extinction by the OCC. In 1999, San Francisco and Santa Monica following mandates of referendums passed by the voters, banned
extra surcharges, fees consumers pay to use automatic teller machines (ATMs) operated by a bank other than their own.

Bank of America and Wells Fargo sued the cities in federal court in a move to invalidate the ordinances. The two banks own 86 percent of theATMs in San Francisco and 72 percent of those in Santa Monica. OCC entered the case on behalf of the banks and filed friend of the court briefs arguing that the National Banking Act preempted the voters’ decisions.

The citizens of the two California cities lost in federal district court and the case is now pending in Ninth Circuit Court with no decision expected until next year. Banks also are seeking to overturn Iowa’s ban on surcharges, again with the muscle of OCC behind them.

“The OCC’s actions on preemption appear to be more those of an indentured servant of the industry than a regulator concerned with the will of Congress,” says Ed Mierzwinski, consumer program director of the U. S. Public Interest Research Group in Washington.

Consumer leaders like Mierzwinski have long complained about the aggressiveness of the Congress and federal regulators in preempting stronger local and state laws designed to protect consumers against excesses of banks and other corporations.

Now New Rules, a quarterly publication of the Institute for Local Self Reliance ( has come on the scene to catalog and question the growing efforts to override/preempt–citizens’ grass roots

David Morris, editor of New Rules, lays out his concerns this way:

Increasingly higher levels of governments are overruling those closer to the citizenry. State legislatures override city councils and county commissions. Federal agencies and Congress override state legislatures. International agencies like the World Trade Organization override congresses and parliaments.

New Rules’ is providing a significant service in exploring the shifting power among levels of government and the ability of corporations and other special interests to seek and find the weakest links through which to gain their goals.