ANDREA NUCIFORO
Ruling ‘a mistake’
Bay State lawmakers are fighting the federal Office of the Comptroller of the Currency’s recent issuance of final pre-emption rules for federally chartered banks, saying the OCC is undermining the state regulatory authority to monitor business occurring in Massachusetts, and have asked national banks to voluntarily comply with state law.
“I think this [pre-emption ruling] is a mistake on the part of the OCC. Basically, these rules will prevent state bank regulators from licensing, examinations, providing predatory lending regulations and other consumer regulations on national banks and their subsidiaries,” said Sen. Andrea Nuciforo, D-Pittsfield, co-chairman of the Legislature’s Joint Committee on Banks and Banking. “The justification given by the OCC is particularly troubling. They are saying that very large national banks can do what they want on a national level without paying attention to state regulation – that completely disregards the uniqueness of the state [laws]. Sometime this month, OCC rules are going to be taking effect and they will pre-empt state law in many areas, including predatory lending. I’m very troubled by it, but we can’t do much about it. We’ve lodged our complaints, and there is a national conference of state bank regulators that has been very active in opposition of this, but the OCC has chosen to disregard these comments.”
On Jan. 7, the OCC, which regulates banks at the federal level, issued two final rules that clarify how federally chartered banks operate within individual states. The OCC also issued federal regulations aimed at predatory lending that now supersede any state regulations.
According to the OCC, the first rule codifies a series of court decisions and OCC interpretations, and establishes symmetry with federal thrifts regarding the types of state laws that apply to national banks, and includes a strong anti-predatory lending standard. The second rule clarifies the scope of the OCC’s visitorial authority under federal law, stipulating that regulatory supervision of national banks be conducted by the federal agency, rather than state regulators.
Kevin Mukri, spokesman at the OCC, said the OCC believes that national banks are already subject to a comprehensive set of federal requirements, and the overlay of multiple state law standards would impose unnecessary and excessively costly burdens. While states are free to pass laws governing the operation of the institutions they supervise and regulate, customers of national banks will continue to benefit from an array of consumer protections available through federal law, OCC regulations and the rigorous supervision of national banks and their subsidiaries by the OCC, according to the new OCC guidelines.
“States can’t regulate national banks. The ruling is quite clearly a matter that has been in place since 1864 – the state cannot put rules on banking practices under the National Bank Act,” said Mukri. “That doesn’t mean that states can’t put rules and regulations on their [state-chartered] banks, but the OCC is a strong proponent of a vibrant dual banking system with differences that allow the consumers choices.”
‘An Act of Good Will’
While the OCC does not have legal authority to issue regulations defining particular acts or practices as unfair and deceptive practices under the Federal Trade Commission Act, the agency does have the authority to take enforcement actions where a national bank is found to have engaged in unfair or deceptive practices.
“For a national bank, the OCC says we want them to have a level playing field … and so state laws do not apply. States are saying we are more aware of our consumers’ needs than the OCC and we are more aware of abuses and non-abuses than the OCC, so we need to have a control of any business entity doing business in our state,” said Ruth Dillingham, vice president and special counsel for the lenders division of First American Title in Boston and chairman of the Massachusetts Mortgage Bankers Association. “We have dual banking systems and a new bank can decide which kind of charter it wants, but having a federal oversight says the OCC has oversight over state regulations, and that puts the state regulators at a disadvantage.”
But state lawmakers are strongly opposed to the ruling, and while they say nothing can be done legislatively at the state level to override the OCC decision, they are urging national banks practicing in Massachusetts to voluntarily follow Massachusetts state laws as they pertain to the banking and mortgage industry.
Rep. John Quinn, D-Dartmouth, who along with Nuciforo is a co-chairman of the Committee on Banks and Banking, also denounced the federal ruling. Quinn and Nuciforo collaboratively issued a letter to federally chartered Bank of America, which is in the process of acquiring Boston-based FleetBoston Financial, asking the institution to voluntarily adhere to local regulations as “an act of good will.”
“I am concerned and disappointed with the OCC ruling overwriting state regulatory acts as it applies to banks. In part, the consumer protection laws that Massachusetts has on the books and may in the future put on the books, now may be overruled by federal legislation,” said Quinn. “What concerns me is that if this ruling stands, it will give state-chartered banks a reason to covert to a federal-chartered bank. The dual banking system is import because consumers have choice. If this ruling stands, national banks could thumb their nose at any state laws.”
According to the Massachusetts Bankers Association, it is unknown how many national banks operating in the state currently adhere to state banking laws on a voluntary basis, and if they do, which laws are obeyed.
“We have about 15 national banks in Massachusetts and I don’t know if they are currently adhering to state regulations. As for predatory lending laws, they really can’t adhere to them” because the state does not have any set predatory lending laws, said Tanya Duncan, director of federal legislative and housing policy for the MBA. “The OCC is trying to clarify that they have the exclusive authority to examine national banks. They are attempting to apply a set of consistent regulations across state lines so that national banks can operate efficiently and cost-effectively without adhering to different state laws in the different states they operate in.”
If a state law is more protective than a federal law, a national bank can argue that they do not have to follow the state law and must only comply with the less-protective federal regulation. State legislators say they are determined to avoid that scenario, particularly in the area of predatory and abusive lending.
While Massachusetts does not have predatory lending legislation in place, the Division of Banks has set regulations and standards with respect to predatory and abusive lending practices, and the state expects those rules to be followed.
“Predatory lending regulations have been in effect for two to three years and we need to hear whether or not the DOB [the state Division of Banks] and consumer groups think they are working and do we need a state statute in place [for predatory lending guidelines],” said Dillingham. “That’s currently being debated in the Legislature. Predatory lending is a gray area in terms of what is a predatory practice – it’s trying to legislate behavior.”
But the MBA is taking a different approach to the OCC ruling.
According to Duncan, the MBA “believes that the [federal] regulators are trying to preserve the dual banking system. We realize that there are strong arguments on both sides, and we think there needs to be a careful balance between consumer protection and operating a business.”
Mukri said that national predatory lending standards are necessary because there is no legal definition of predatory lending. “It’s like all things to all people,” he said.
The OCC has set its predatory lending standards and Mukri said those guidelines are the only ones with which federally chartered must be concerned.
“[M]aybe some states have more stringent rules and some states have no rules at all, but … it’s up to the consumer to make the choice on which bank to use – federal or state-chartered. This just helps promote the [dual] banking system. We are not trying to outdo or under-do anybody, we are just stating what we feel is important to do for the consumer.”
But according to Bay State legislators, deciding what is in the best interest of the consumer should be left to the state regulators.
“We can certainly ask national banks to comply, but I can’t imagine that they would. It’s a matter at the federal level now,” said Nuciforo. “Clearly, with respect to predatory lending, there is a serious problem with predatory lending in Massachusetts and that is the reason we’ve had state oversight.”
Although Massachusetts has no set predatory lending laws in place, Nuciforo confirmed that he and Quinn are currently working on the issue in the Legislature and will be submitting a draft on predatory lending laws to the Joint Committee on Banks and Banking in the near future.
