With less than a month left in the Trump administration, the Office of the Comptroller of the Currency has rankled consumer advocates and state officials with a more aggressive policy on when national banks can preempt state consumer protection laws.
The OCC issued an interpretive
“This is exactly the kind of overreach that Congress was trying to put an end to,” Christopher Odinet, a law professor at the University of Iowa College of Law, said of the OCC letter.
The letter attempts to resolve a debate over how much Dodd-Frank actually limited the OCC’s power to spare national banks and their partners from a patchwork of state laws.
Dodd-Frank specified scenarios under which federal law can preempt state law, including when a state law discriminates against national banks, or “significantly interferes with” a national bank’s powers.
The 2010 financial regulatory overhaul said the OCC can make a “preemption determination” in accordance with the so-called Barnett standard on a “case-by-case” basis.
The OCC claimed in the letter that additional procedural requirements under Dodd-Frank are limited only to regulations or orders that explicitly conclude state consumer laws are preempted. This interpretation would give a pass to other actions by the agency that do not include a "preemption determination."
“An OCC action that has only indirect or incidental effects on a state consumer financial law is not a preemption determination,” the agency said in its letter.
That interpretation could have wide-ranging implications as the OCC under acting Comptroller Brian Brooks remains at odds with state regulators and attorneys general over the bounds of the federal regulator’s powers relative to states.
The OCC has faced legal challenges to its “true lender” rule
Consumer groups and some state AGs say the preemption letter is another form of overreach by the OCC and should be rescinded by whomever President-elect Joe Biden installs at the agency.
“Under its current leadership, the OCC has demonstrated that it has failed to learn the lessons of the last financial crisis,” New York Attorney General Letitia James said in a statement. “Its recent letter makes every attempt to evade the limits Congress placed on its authority to preempt state law, and it would give the agency wide latitude to open up consumers and our economy to predators. We will continue to fight any attempt to water down New York’s consumer protections.”
Dodd-Frank limited the OCC to preempting state laws only when certain conditions are met, as opposed to sweeping rules that could usurp local consumer protections. The agency is also required to consult with the Consumer Financial Protection Bureau when doing so and periodically open up its determinations to comment. The 2010 requirements were meant to limit the OCC’s powers after critics claimed the agency allowed banks to skirt restrictions on subprime mortgages before the 2008 meltdown.
Odinet said the OCC’s latest interpretation could give national banks a pass from stricter state laws as long as the agency doesn’t call it preemption, said Christopher Odinet, a law professor at the University of Iowa College of Law.
“That would completely eviscerate what Congress was trying to do" in Dodd-Frank, Odinet said.
An OCC spokesman did not immediately comment for this story.
The National Consumer Law Center filed an amicus brief Tuesday in a case brought by some state AGs, including New York’s, challenging the true-lender rule. The group stated that the OCC’s “rule is directly aimed at preempting state interest rate laws, but the OCC did not directly discuss the rule’s preemption effect when it issued the rule.”
“The OCC cannot ‘interpret’ away Congress’s limits on the agency’s ability to wipe out important state consumer financial protection laws,” said Lauren Saunders, associate director at the center.
Kevin Petrasic, a partner at Davis Wright Tremaine and a former official at the Office of Thrift Supervision, said the OCC letter has been taken by the banking industry as a clarification that the agency can still wield some preemption authority.
“The letter is a signal to the industry to say this power is still around,” Petrasic said. “The OCC doesn’t have any qualms about exercising the power within the constraints of the law, which isn’t always clear.”
Petrasic said because of the very literal interpretation the OCC uses in the letter, a response from lawmakers and a court challenge is inevitable.
Odinet said the interpretation is “indefensible” if it is called into question.
“The Supreme Court has already said before the Dodd-Frank Act that if it looks like preemption and it quacks like preemption, it’s preemption even if you don’t call it that,” Odinet said.
