The National Bank Regulator’s War on Consumers

Former corporate lawyer, John (Jerry) Hawke, the Comptroller of the Currency, has long laid claim to the title of terminator of state and local consumer protection laws. When national banks-Hawke’s constituency-have gone to court to block consumer protections they have always found the Comptroller’s legal staff eager and ready to join the case on their behalf.

Not satisfied with the case by case assault on state consumer laws, Hawke now has expanded his war on consumers by publishing sweeping new regulations to reinforce the preemption of state law enforcement authority and to nullify virtually all state laws for national banks and their subsidiaries.

The Comptroller’s new power grab has generated a full-throated cry of outrage from consumer organizations, the National Conference of Legislatures and the National Governors Association which believe that Hawke is abusing the preemption
authority of the National Banking Act of 1864.

Many of Hawke’s new regulations are designed to shore up the Comptroller’s sole authority over real estate lending activities involving national banks. This means national banks will be able to thumb their noses at state efforts to control predatory lending scams and outrageous fees heaped on consumers.

In a lame attempt to suggest that the real estate preemptions will create no harm, the Comptroller’s proposed regulation
argues that “real estate lending is pervasively regulated under federal standards and subject to comprehensive supervision [by the Comptroller]” This claim doesn’t pass the laugh test. The National Consumer Law Center points out that Comptroller’s own website reveals only five enforcement actions by the Comptroller involving unfair or deceptive lending practices over the past four years.

The Office of the Comptroller of the Currency’s (OCC) primary function is safety and soundness of the national banks. That is where its resources and examination staff are focused. It is not designed as a “consumer-friendly” agency. Its consumer-outreach consists of little more than a “Customer Assistance” office located in Houston, Texas where it takes phone calls and mail from consumers who have complaints about national banks-hardly a likely deterrent for a predatory lender.

The sad part about OCC’s preemption mania is that it is depriving consumers of significant resources that states could apply to the fight against predatory practices and excessive fees. But OCC’s concerns about state intervention involving national bank practices, at times, borders on paranoia.

Last year, OCC’s general counsel sent a memorandum to national banks, warning them about visitations, inquiries or data
requests that might come to the banks from state attorneys general. If and when such contacts were initiated, the banks were to immediately notify the OCC.

The fear, of course, was that the attorneys general access might, somehow, be a foot in the door for the states and a diminution of the national bank’s preemption authority.

What an absurdity. State attorneys general are a key part of the nation’s law enforcement machinery and a group that, in most states, is in the forefront of efforts to combat consumer fraud and abusive practices.

OCC’s aggressive expansion of its preemptive powers comes at a particularly perilous moment for consumers. The federal legislature is controlled by reactionary majorities whose Senators and Representatives have demonstrated repeated hostility to legislation designed to protect consumer rights in the marketplace or to combat corporate fraud and abuse. Under these circumstances it is particularly damaging for the regulator of national banks to slam the door on state legislative initiatives and state law enforcement designed to protect consumers.

Seldom mentioned in the battle over national bank preemption is the special interest in the financial well-being of the Office of the Comptroller of the Currency. OCC is the only commercial bank regulator dependent solely on funds provided by the very banks they regulate. The Federal Reserve simply uses part of its massive income from its open market operations to finance its operations including bank regulation.

And the FDIC has insurance funds and interest on those funds to keep it financially sound. But, the Office of the Comptroller of the Currency depends on direct assessments on the banks it regulates.

As a result, OCC likes to keep its bank constituency happy. It doesn’t want big national banks-which pay the freight-to get any notions about switching to state charters which might cause a precipitous decline in assessment income for OCC. And it is no secret that the national banks like the idea that OCC is willing to fight their battles against state consumer laws. So, preemption is a convenient tool with which to encourage national banks to stay in the OCC fold.

This Congress may well be tone deaf when it comes to the public interest, but it can be reached if citizens are willing to make the effort. Consumer groups and some state governments have sounded a loud alarm about the loss of state consumer protections and state law enforcement.

If enough citizens will join fight, the Comptroller, despite his splendid isolation, can be forced to give up his war against consumers.

Let your U. S. Senators (202-224-3121) and Representative (202-225-3121) know you want the Comptroller of the Currency to stop shredding your state consumer protections and stop using his office to shield and comfort national banks.