In a letter to Acting Comptroller John Walsh, the Conference of State Bank Supervisors (CSBS) expressed its objections to the Office of the Comptroller of the Currency’s (OCC) proposed preemption revisions to the OCC’s regulations implementing the National Bank Act.
CSBS has long been an advocate of a state-federal balance that recognizes the importance of state authority, especially in the area of consumer financial protection. “The Constitution of the United States established a federalist system to balance local and national priorities, and a return to a more balanced state-federal regulatory regime in the exercise of bank regulation would greatly improve our financial system,” wrote Neil Milner, CSBS President and CEO.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a key turning point on the issue of preemption, clearly recalibrating the relationship between the National Bank Act and applicable state law by rejecting the blanket preemption provisions that had served the interests of the nation’s largest financial institutions to the detriment of consumers and state authority. Unfortunately, in an effort to wish away Congress’s clear rejection of the status quo, the OCC’s proposed preemption regulations plainly ignore the state-federal balance that the statutory language of Dodd-Frank strikes.
Both the intent of the United States Congress and the mandate of the Dodd-Frank Act on this issue are clear. Congress has undone the OCC’s broad preemption determinations, limited the OCC’s authority in this area going forward, and established the Barnett decision’s “prevent or significantly interfere” standard as the preemption standard for the OCC to apply. “Congress’s rejection of the OCC’s prior approach could not be clearer,” wrote Milner.
Unfortunately, the OCC’s proposed rule violates both Congress’s intent and the plain language of the Dodd-Frank Act. The OCC’s insistence that “obstruct, impair, or condition” is a legally valid preemption standard for national banks is unjustifiable. “We believe the OCC’s proposed rule clearly violates Dodd-Frank’s preemption requirements and undermines the principles of federalism,” Milner continued. “Accordingly, the OCC should rescind its preemption regulations and proceed as directed by Congress. Failure to do so is to reject Congress’s clear direction to rethink preemption and the appropriate role of both the state and federal players in forming a partnership that is in the best interest of our nation’s economy as well as the individual citizens that our nation’s financial system is supposed to serve.”
Ultimately, in the wake of the financial crisis, there is a wealth of evidence that broad preemption is simply not good public policy. Understanding local markets and business practices requires a strong presence in the community. For the banking regulatory system to be successful, both the federal and state regulators must have a role and respect our federalist system of supervision. “State regulators have a unique expertise in local banking practices and local markets, which makes them uniquely situated to recognize and act upon consumer financial protection issues,” Milner wrote.
It is disappointing that the OCC has chosen to ignore not only Congress’s mandate for the OCC to rescind its existing body of preemption rules and but also the opportunity to engage constructively with states to work toward substantive uniformity that reflects the new state-federal alignments embodied in Dodd-Frank.
The CSBS letter may be viewed here.