Open Letter to President Biden
Dear President Biden,
State regulation is a critical part of the U.S. financial system, covering a broad portfolio of banks and a rapidly evolving nonbank industry. State financial regulators are committed to partnering with the federal government to strengthen financial regulation and consumer protections across the nation.
As you consider leaders for the federal financial agencies, I would ask for you to consider the following:
- The critical role of state supervision in our financial system.
- How we can make the financial system stronger by working together.
- The importance of cooperative federalism.
- Actions taken by the Office of the Comptroller of the Currency (OCC) that disrupt this partnership.
The role of state supervision
States oversee 79% of U.S. banks, which provide half of all small loans to businesses and two-thirds of agricultural lending, and are the primary regulators of a diverse range of nonbank financial services companies. The Conference of State Bank Supervisors (CSBS), on behalf of state regulators, operates the Nationwide Multistate Licensing System for the money services, mortgage, consumer finance and debt industries. In this role, CSBS holds the largest and most comprehensive collection of mortgage and MSB data, which is made available to the Office of Financial Research, Consumer Financial Protection Bureau (CFPB) and the federal banking agencies through information sharing agreements.
State regulators’ unique vantage point strengthens the overall financial regulatory system. As the nonbank marketplace evolves, state regulators are leveraging technology and their collaborative efforts to create a nationwide, federated system of licensing and supervision. This more integrated and efficient system will reduce regulatory burden, better protect consumers, and enhance the state-federal partnership with more timely data and new risk identification tools.
Working together, we can make the entire financial system stronger
We look forward to building on our long-standing relationships with the Federal Reserve Board of Governors, Federal Deposit Insurance Corporation (FDIC) and the CFPB. The states jointly cooperate and collaborate with these agencies to regulate most banks and nonbanks in the United States.
Federal law specifically recognizes the role of state regulators by designating a state regulator with a seat on the Financial Stability Oversight Council and a voting membership on the Federal Financial Institutions Examination Council.
Federal law also requires at least one member of the Federal Reserve Board of Governors and the FDIC Board to have experience as a state regulator. We are particularly eager for you to appoint a director with state supervisory experience to the FDIC board. No one has met this requirement on the FDIC board since former Massachusetts State Bank Commissioner Thomas Curry finished his term in 2012.
In the field of consumer financial protection regulation, federal and state jurisdictions are not independent or mere substitutes but are interdependent and complementary. It is not a state or federal system, it is state and federal system of financial regulation.
The importance of cooperative federalism
State regulators are committed to a system of cooperative federalism with clearly defined responsibilities to protect consumers, ensure a safe and sound financial system and promote innovation.
As such, we are opposed to unnecessary attempts by the federal government to preempt state law, undermine consumer protections and start a race to the bottom. This approach damages the local, state and national economies along the way, as we observed during the lead up to the financial crisis in 2008.
We do, however, support the judicious use of federal preemption in a form of “floor preemption,” whereby state law is preempted only if it is inconsistent with federal law but not when state law is more protective of consumers. This provides a base level of uniformity while leaving state legislatures free to enact higher standards as their local communities deem necessary and otherwise nimbly respond to new challenges emerging from evolution in the financial services marketplace.
For this reason, state regulators have actively sought to prevent the OCC from attempting to undermine or preempt state usury and nonbank licensing laws through the creation of uninsured national nonbank charters without clear authorization from Congress and other actions intended to enable uninsured nonbanks to benefit from the preemption privileges reserved to national banks without the obligations.
We are particularly concerned about the following OCC actions and request that your Administration promptly rejects these approaches:
- Interpretative Letter 1173: 12 U.S.C. § 25b: After the financial crisis of 2008, Congress imposed restrictions on the ability of the OCC to preempt state law through the Dodd-Frank Act (DFA). The OCC has flouted these limitations since they were enacted and maintained the very preemption regulations that Congress intended to overturn by failing to apply the preemption standard mandated by the DFA as well as simply ignoring the case-by-case analysis, public notice and periodic review requirements. In a recent interpretive letter, the OCC even said that it need not comply with these limitations even if the primary purpose of a regulation is to preempt state law so long as the OCC does not acknowledge its intended preemptive effect.
- COVID-19 Relief – OCC Preemption Bulletin: At the onset of the COVID-19 pandemic, the OCC issued a bulletin discouraging states from enacting COVID-19 relief laws, including foreclosure and eviction moratoriums, and applying them to national banks because such laws would purportedly be preempted. The OCC, again, failed to follow the requirements imposed on preemption determinations and made it increasingly difficult for states to enact relief and protections necessary for consumers and desired by local communities.
- True lender Rule: The true lender doctrine is and should remain a matter of state law. Issues of credit affordability and access are inherently local concerns. The OCC should not erode state consumer rights and protections, particularly when it refuses to follow the process mandated by Congress to preempt those protections.
- Activities and Operations of National Banks: The recently revised federal regulation represents an unprecedented departure from settled law and Congressional intent by no longer requiring a national bank to apply to establish a branch to perform both loan approval and loan origination functions at a single, publicly accessible office and disburse loan proceeds via an operating subsidiary, even if this activity provides a competitive advantage to the national bank. The proposed “non-branch” rules would allow national banks to operate de facto branches without branch-related obligations under the Community Reinvestment Act.
- Interpretative Letter 1176: National Trust Banks: The OCC lacks the authority to charter national trust companies to engage in banking and other nonfiduciary activities because they cannot lawfully engage in such activities directly or indirectly. This interpretative letter represents yet another attempt by the OCC to create uninsured national nonbank charters without clear authorization from Congress.
We are hopeful that, with your administration, the OCC will reconsider these actions and consider the states as partners, not adversaries. We look forward to a renewed cooperative federalism.
State regulators have a mandate to ensure safety and soundness, protect consumers and promote economic growth. We hope that the Biden administration appoints leaders who embrace cooperative federalism and respect the role states play in financial regulation. We look forward to working together with the Biden Administration to ensure that our citizens are protected while having broad, easy access to banking and credit services, during the pandemic and beyond.
John W. Ryan
CSBS President and CEO
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