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WASHINGTON — Large banks have repeatedly prevailed in battles to preserve federal preemption in Congress and the courts, but that victory string is likely to be broken by the regulatory reform bill being debated in the Senate this week.
May 3 -
The Senate bill would explicitly return to the so-called "Barnett" standard that existed before the preemption rules issued by the Office of the Comptroller of the Currency in 2004. But the bill also contains language that OCC officials warned would make preemption more complex and burdensome.
March 17
WASHINGTON — A drive to strengthen preemption language in the regulatory reform bill appears to be gaining momentum.
Sen. Tom Carper, D-Del., and 13 bipartisan co-sponsors are pushing an amendment that would prevent state attorneys general from enforcing federal law against national banks.
As late as last week most observers had said such a measure was unlikely to pass. But it has steadily picked up steam as lawmakers prepare to vote on it next week.
"We are continuing to gathering co-sponsors and my hope is we will be able to work things out," Carper said in an interview.
Likely as a result, the White House stepped up its attacks on the amendment Thursday, arguing that a stronger patrol force would ensure national banks do not engage in abusive lending. Under the current bill from Senate Banking Committee Chairman Chris Dodd, state attorneys general would be free to enforce federal and applicable state law against all banks, regardless of charter.
"We think that amendments that try to remove … states' authority to enforce federal consumer protection laws are very problematic, and you'll see some of those come up and we intend to fight those," Diana Farrell, deputy director of the National Economic Council, said in a conference call with reporters Thursday.
State attorneys general said the financial consumer protection laws are so vast that more enforcement officers are needed. "When you are dealing with mortgages, when you are dealing with credit cards and other financial transactions, there's no way the federal government can do the whole job," Iowa Attorney General Tom Miller said on the call. "There's no way the state government can do the whole job. We can only do the job for the public if we work together. One amendment, the Carper amendment, would frustrate that."
In response, Carper said, "I hope they feel better after pounding their chests a little bit."
"I hope they actually read what is proposed in my amendment... and what we are trying to preserve," he said.
Carper has won support in attempting to frame his amendment as a way to strengthen the proposed Consumer Protection Bureau.
"I'm OK with the state AGs being involved with enforcement for state chartered banks," he said. "With respect to compliance for national banks, I think we need to create a consumer bureau, make them strong, give them the resources they need for enforcement for large banks and let them do their job."
Preemption is one of several issues the banking industry is focused on as the reform bill continues to make its way through the Senate. Under the Dodd bill, the Office of the Comptroller of the Currency would be allowed to follow the so-called Barnett standard to preempt state laws on a case-by-case basis. But the bill would require the agency to take additional steps, including proving that the issue a state law is addressing is already being addressed by a federal standard.
Carper's amendment would remove that language and limit state attorneys general to enforcing only applicable state laws against banks.
So far, Carper has attracted significant bipartisan support, including Sens. Tim Johnson, D-S.D., Bob Corker, R-Tenn., George Voinovich, R-Ohio, and Mark Warner, D-Va. Carper is being helped by the OCC, which has made preemption its primary focus in lobbying on the reg reform bill.
But the White House has enlisted state attorneys general — including Connecticut's Richard Blumenthal, who is running for the Democrat's Senate seat in the state — in its effort to repel the measure.
The "most desirable way to regulate in this complex and diverse area of our financial lives is to have national standards, but state enforcement of those standards can be extraordinarily important, because resources and responsiveness are so profoundly significant," said Blumenthal, who also participated on the White House call.
Carper is also opposed by the Conference of State Bank Supervisors, which argues that allowing state officials to enforce all laws could assist the Consumer Financial Protection Bureau. "It actually weakens the CFPB by taking the states out of the picture," said John Ryan, executive vice president of the bank supervisor group.
