WASHINGTON - The Office of the Comptroller of the Currency literally did not play by the rules when it cracked down in late June on the credit card issuer Providian National Bank, a group of banking lawyers asserts.
The Comptroller's Office relied on the Federal Trade Commission Act, which includes a section that bars practices deemed unfair or deceptive. But some industry lawyers say that because the Federal Reserve Board has never written rules to implement that section, other agencies cannot enforce the law.
The Comptroller's Office acknowledges that this is the first time a federal bank regulator has used the FTC Act to bring an action for unfair and deceptive business practices. But the agency says it is confident that its groundbreaking move is well within its enforcement scope.
"The question is: If there are no rules, can an agency take enforcement action on the basis of the statute? We say, yes," OCC Chief Counsel Julie L. Williams said in an interview last week. "We have authority to take cease-and-desist actions with respect to laws that relate to bank operations."
The agency's cease-and-desist authority comes from the Federal Deposit Insurance Act, which expressly allows agencies to take action for any violation of law, Ms. Williams said.
"The [FTC] statute itself prohibits unfair or deceptive practices. There's no suggestion that banks are immune from that," she said, adding that "careful and thorough analysis" long before the Providian case arose concluded that the agency could enforce the FTC Act.
Rather than fight the charges in court, Providian agreed June 28 to settle claims involving hundreds of thousands of consumers. The bank, a subsidiary of Providian Financial Corp. in San Francisco, agreed to discontinue practices such as charging customers for services that had not been requested, to calculate the number of customers harmed, and to pay them at least $300 million by Sept. 28.
The comptroller's enforcement of the FTC Act surprised banking-law experts, who are split over whether banking agencies may enforce only the rules written under the FTC Act or can enforce the underlying law itself when no rules exist.
"It seems to be a stretch on a legal basis. With respect to the federal law, the applicability to the bank is not entirely clear," said John Douglas, a former Federal Deposit Insurance Corp. general counsel who is now a partner at the Atlanta law firm of Alston & Bird.
A Washington lawyer speaking on condition of anonymity said the OCC's application of the law went beyond Congress' intent. "There is a good technical and policy argument for the proposition that Congress did not allocate this responsibility to the OCC," he said.
The OCC's attempt "to directly enforce the FTC Act is a serious technical issue, because when you read the statute, it does not have jurisdiction over banks," said another anonymous Washington banking attorney. "Congress did not contemplate that other agencies would or could enforce the FTC Act directly against banks."
Ms. Williams conceded that rules would be useful. "It is always helpful to have some additional clarity," she said. "It can be helpful for the affected financial institutions."
Ron Glancz, a partner at the Venable, Baetjer, Howard & Civiletti firm in Washington, practiced banking law early in his career at the OCC and FDIC; he said the Comptroller's Office did right.
"The OCC has very broad remedial authority. Use of the FTC Act "is consistent with their mandate, and secondly very consistent with what Julie Williams has done in the past, which is reinterpreting an old law to keep up with modern times."
