Consumer advocates claim bank regulators are not suited for the job of protecting consumers, but the Office of the Comptroller of the Currency says consumer protection is an essential strategic goal.
The agency, which regulates most of the country's large consumer banks, began pursuing unfair or deceptive acts under section 5 of the Federal Trade Commission Act well before the debate over preemption reached its current fever pitch.
The OCC became the first bank regulator to cite its authority under the FTC Act, in June 2000, when it took action against Providian National Bank. The San Francisco credit card bank was forced to repay at least $300 million to borrowers who had fallen prey to deceptive marketing practices.
The FTC Act, passed in 1914 and substantially amended in 1975, shielded insured depository institutions from the FTC's enforcement power. Congress instead left it to the Federal Reserve Board to promulgate regulations identifying unfair or deceptive practices for banks.
Only it never did.
"It was kind of assumed over all those years that without the benefit of a rule, those agencies that had the direct enforcement power would not be able to bring cases and use that power under section 5," said former Comptroller of the Currency Jerry Hawke, who is now in private practice with the law firm Arnold & Porter LLP in Washington.
Early in his tenure as the comptroller, Mr. Hawke sat down with his chief counsel - Julie Williams, now the acting comptroller - and looked for a way to apply the law despite the lack of regulations. Through their enforcement actions against unsafe and unsound banking practices, they knew that the Federal Deposit Insurance Act gave them the power to take action against a bank for any violation of law.
They reasoned that "if we found an unfair or deceptive practice in a bank, it violated section 5 of the Federal Trade Commission Act, and therefore, without the benefit of a defining rule, we could bring an action and prove the facts of a particular case that the conduct was unfair or deceptive," Mr. Hawke said. "That was a very novel theory, because nobody had advanced it before."
They got further support in a May 2002 letter from Fed Chairman Alan Greenspan to Rep. John LaFalce, then the ranking Democrat on the House Financial Services Committee.
"The fact that banks are excluded from the FTC's authority to enforce this prohibition merely reflects Congress' preference that the bank agencies - not the FTC - are the appropriate enforcing authorities for banks," Mr. Greenspan wrote. "Moreover, the fact that the … [Fed] may issue rules … does not negate the fact that the general prohibition in the FTC Act applies to banks and that the banking agencies have authority under the FDI Act to enforce any law, including that statutory prohibition."
In March of this year the Fed and the Federal Deposit Insurance Corp. jointly issued guidelines on how the state-chartered banks they supervise can avoid violations.
The Fed has not announced an enforcement order with any of its banks under section 5. Neither has the FDIC, though a spokesman said searches for unfair or deceptive practices had been incorporated in exam procedures.
In fact, to this point only the OCC has cited unfair or deceptive acts or practices in enforcement actions. It has done so in seven cases, beginning with Providian and most recently in May against a two-time offender, First National Bank of Marin in Las Vegas.
"The ability to take an action against unfair deceptive practices [under section 5] is one tool that we have to deal with practices that are not acceptable for national banks," Ms. Williams said.
