WASHINGTON The Office of the Comptroller of the Currency
issued an order today holding that the Georgia Fair Lending Act does not apply
to national banks and proposed a new regulation that would clarify what types
of state laws apply to national banks.
The proposed regulation also establishes a strong
anti-predatory lending standard that is aimed at keeping abusive practices out
of the national banking system without denying low-income Americans and other
subprime borrowers access to credit they need to improve their lives.
We have no evidence that national banks are engaged in
predatory lending practices, said Comptroller of the Currency John D. Hawke,
Jr. The standards we are proposing
today will not only keep abuses from creeping into the system, but will protect
consumers without having the unintended consequence of restricting access to
credit.
The OCCs proposed predatory lending standard is based on
safety-and-soundness principles, and complements the OCCs approach to
preventing unfair and deceptive practices. The proposed rule would prohibit
national banks from making loans that they cannot reasonably expect to be
repaid without recourse to the borrowers collateral.
Our regulation addresses one of the defining
characteristics of predatory lending the extension of credit with the intent
of seizing a borrowers home or other collateral, said Mr. Hawke.
We have seen too many cases where the most vulnerable members
of our society are talked into refinancing a mortgage or taking on credit they
cannot afford to repay, only to lose their home as a result, Mr. Hawke added.
That is the type of abusive practice that we are determined to keep out of the
national banking system.
The preamble to the regulation also makes note of the OCCs
pioneering approach to preventing unfair and deceptive practices. The OCC has
taken a number of enforcement actions over the past three years requiring one
lender to pay out over $300 million in restitution nationwide in response to
unfair or deceptive marketing practices. To the extent that unfair and
deceptive marketing may induce consumers into taking credit that they do not
need or under terms they do not understand, such practices can be predatory.
The proposed regulation would apply the OCCs predatory
lending standard to all lending activities, including real estate.
I firmly believe that we have found a better way to combat
abusive lending practices and I would invite state regulators to apply similar
standards to the institutions they supervise, said Mr. Hawke.
In the Georgia case, the OCC responded to a request by
National City Bank, National City Bank of Indiana, and their operating
subsidiaries for a determination about whether the Georgia Fair Lending Act
applied to national banks. The National City request was published for comment
in the Federal Register on February 26, 2003.
In the order, the OCC noted that the authority of national
banks to engage in real estate lending derives exclusively from federal law
and, under applicable preemption principles, states may not modify or limit a
national banks exercise of that power.
It is a matter of constitutional law and federal statute
that the powers of national banks cannot be obstructed by state laws or
regulation, said Comptroller Hawke. Federal preemption is a principle that is
almost as old as our nation itself and the Supreme Court has repeatedly ruled
against the states when they have sought to limit the activities national banks
are authorized to conduct under federal law.
The order on the Georgia law notes that much of the law was
already preempted under existing OCC regulations. For example, Part 34 of the
OCCs rules says expressly that state laws concerning repayment schedules or
the term to maturity of a loan do not apply to national banks. Therefore,
federal law already preempts provisions of the Georgia law that impose limits
or restrictions concerning the schedule for repayment of principal and interest
or the term to maturity of a loan extended by a national bank.
Other parts of the Georgia law that were also found to be
preempted include:
Provisions that purport to limit the interest a national
bank can charge for loans. Permissible interest rates for national banks are
determined under federal law based on the most favorable rate in the state in
which the bank is located, which for National City is Indiana.
Provisions that purport to limit the non-interest fees a
national bank can charge in connection with a loan, since these provisions are
inconsistent with the well-recognized right of a national bank to establish
fees based on the National Bank Act and OCC regulations.
In addition, the OCC order concludes that the Georgia law is
preempted with respect to national bank operating subsidiaries. Federal law
allows national banks to conduct lawful activities through operating
subsidiaries and those activities are subject to the same terms and conditions
that would apply to the parent bank.
The proposed regulation responds to numerous requests the
OCC has received in recent years about the extent to which state law applies to
national banks. Without further clarification, national banks, particularly
those with customers in multiple states, face uncertain compliance risks and
substantial additional compliance burdens and expenses that materially impact
their ability to offer particular products and services.
The proposal addresses two specific parts of the OCCs
regulations, Part 34, which deals with real estate lending, and Part 7, which
governs non-real estate lending, deposit-taking and other national bank
activities.
Part 34
The proposed regulation notes that 12 U.S.C. 371 provides a
broad grant of authority for national banks to engage in real estate lending.
Under the statute, only the Comptroller of the Currency may promulgate
regulations or orders governing real estate lending by national banks.
The proposal sets out examples of the types of state
statutes the OCC or the courts have concluded would be preempted. They include
licensing laws, laws that address the terms of credit, permissible rates of
interest, escrow accounts, and disclosure and advertising.
The list is not intended to be exhaustive. The proposal
notes that other types of state laws that obstruct, in whole or in part, or
condition the exercise of national banks' real estate lending powers may be
identified and will be addressed on a case-by-case basis.
In addition, the proposal lists examples of state laws that
would not be preempted for national banks, including laws that generally
pertain to contracts, debt collection, acquisition and transfer of property,
taxation, zoning, crimes, torts, and homestead rights. Other laws that interfere to only an
insignificant extent with national banks' real estate lending powers or are
otherwise consistent with national banks authority to engage in real estate
lending would not be preempted under this proposal.
Part 7
Deposit-taking and lending powers are specifically
enumerated in federal statute. The same federal law also grants to national
banks the broader power to engage in activities that are part of, or incidental
to, the business of banking.
The OCCs regulations already address the applicability of
state law to a number of specific types of activities. Because questions
continue to arise about other Part 7 activities, the proposed regulation
provides that state laws do not apply to national banks if they obstruct, in
whole or in part, or condition a national banks ability to exercise fully the
powers authorized it under federal law.
The proposal lists several types of state laws that are
preempted under federal law, and types of laws that would not be preempted, and
notes that in some circumstances Federal law specifically may require the
application of a state law to a national bank.
The proposal dealing with the applicability of state laws
affecting other national bank activities is similar to the proposal for deposit
taking and non-real estate lending. Laws that obstruct, in whole or in part, or
condition, a national banks ability to fully exercise its authorized powers do
not apply to the national bank.
The lending activities covered under Part 7 are also subject
to the OCCs safety-and-soundness-based anti-predatory lending prohibition.
#
# #
|
The OCC charters, regulates
and examines approximately 2,100 national banks and 52 federal branches of
foreign banks in the U.S., accounting for more than 55 percent of the
nations banking assets. Its mission is to ensure a safe and sound and
competitive national banking system that supports the citizens, communities
and economy of the United States.
|