WASHINGTON The Office of the Comptroller of the Currency
issued two final rules today that reflect the federal character of the national
banking system. The regulations enhance the ability of national banks to plan
their activities with predictability and to operate efficiently, subject to
effective and efficient supervision.
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
OCCs visitorial authority under federal law.
The new rules respond to numerous questions the OCC has
received in recent years about the extent to which state laws apply to national
banks and the authority of state or other agencies to examine or take actions
against national banks. 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.
When national banks are unable to operate under uniform,
consistent and predictable standards, their business suffers and so does the
safety and soundness of the national banking system, said Comptroller of the
Currency John D. Hawke, Jr. The application of multiple and often
unpredictable state laws interferes with their ability to plan and manage their
business, as well as their ability to serve the people, the communities and the
economy of the United States.
Mr. Hawke noted that national banks operate in an
environment characterized by rapidly-evolving technology, a highly mobile
customer base and credit markets that are national, if not international in
scope. In that environment, the proliferation of state and local laws leads to
higher costs that banks must either absorb themselves, pass on to their
customers, or avoid by dropping products and reducing the availability of
credit.
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, the Comptroller added.
In the area of predatory lending, national bank customers
would be protected by the comprehensive standard included in todays
rulemaking. The standard, which applies to all consumer lending activities,
codifies the OCCs pioneering approach to combating unfair and deceptive
practices and bars loans that rely upon the foreclosure value of the collateral
for repayment, a restriction that will prevent lenders from extending credit
with an eye toward seizing a borrowers home.
We have seen only isolated cases of abusive practices among
national banks, Mr. Hawke added. But when we have identified problems, we
have taken quick and effective action. Our enforcement actions have resulted in
the payment of hundreds of millions of dollars in restitution to national bank
customers.
The Comptroller said that the OCCs anti-predatory lending
standard is a preventive measure that is aimed at keeping abuses out of the
national banking system.
Predatory lending is a very significant problem in many
American communities, but there is scant evidence that regulated banks are
engaged in abusive or predatory practices, he said. Our regulation will
ensure that predatory lending does not gain a foothold in the national banking
system.
The prohibition on basing loans on the foreclosure value of
the borrowers collateral is grounded in safety and soundness principles.
However, in response to comment letters noting that such practices are common
in business lending and with some types of loans such as reverse mortgages, the
OCC specified that the rule applies only to consumer loans and that loans could
be based on collateral values if the borrower and lender agree that it is
likely the collateral will be used to repay the debt.
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. The rule thus specifically provides
that national banks shall not engage in unfair and deceptive practices within
the meaning of Section 5 of the Act. In recent years, the OCC has taken a
series of enforcement actions based on Section 5 of the FTC Act.
The preemption rule deals with lending, deposit taking and
other national bank activities. OCC regulations already included a partial list
of state laws that do not apply to national bank real estate lending
activities, which are covered by a separate federal statute, 12 U.S.C. 371.
The preemption rule issued today builds on the current
regulation by providing that state laws that obstruct, impair or condition a
national banks powers in the areas of lending, deposit taking and other
national bank operations are not applicable to national banks. The rule
identifies
additional specific types of state laws that apply to
national banks and specific types of laws that do not apply.
Examples of laws that do not apply to national banks are
those that regulate loan terms, require state licenses, or impose conditions on
deposit or credit relationships. Laws that do not affect the manner or content
of national bank activities, such as those dealing with contracts, torts,
taxation, or zoning, are not preempted under the rule.
Federal preemption is not a new idea, Mr. Hawke said. Its
roots lie in the Supremacy Clause of the Constitution, and the courts have
repeatedly held that the states cannot restrict the federally-authorized
activities of national banks.
The Comptroller noted that the list of preempted state laws
is nearly identical to the list incorporated into the regulations of the Office
of Thrift Supervision, the federal agency that supervises nationally chartered
thrift institutions.
The visitorial powers rule clarifies two points concerning
the OCCs existing regulation governing its exclusive power to supervise
national banks. Under federal statute, No national bank shall be subject to
any visitorial powers except as authorized by Federal law, vested in the courts
of justice or such as shall be, or have been exercised or directed by Congress.
. .
The rule clarifies that the scope of the OCCs exclusive
visitorial authority applies to the content and conduct of national bank
activities authorized under federal law, but not to areas that have nothing to
do with the business of banking, such as environmental laws and fire codes.
The regulation also clarifies that the exception for
visitorial powers vested in the courts of justice pertains to the powers of
the judiciary and does not grant state or other government authorities rights they
do not otherwise possess to examine or supervise a national bank.
Under existing regulations that were not changed in todays
rulemakings, both the visitorial powers rule and the preemption regulation
apply to the operating subsidiaries of national banks. They do not apply to
financial subsidiaries, nor do they authorize any new powers or activities,
such as real estate brokerage.
The two regulations will take effect 30 days after
publication in the Federal Register.
The two regulations and additional explanatory materials are
available on the OCCs Internet site at: http://www.occ.treas.gov/newrules.htm
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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.
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