Will Obama's Comptroller Choice Ease Preemption Standards?

WASHINGTON — State advocates hoping that Tom Curry will dial back preemption rules may be disappointed.

Although the administration has made clear that it supports a more narrow preemption standard, industry watchers say Curry, a former state regulator tapped as the next head of the Office of the Comptroller of the Currency, is unlikely to disagree sharply with policies developed by his predecessors.

"He will be a faithful policy administrator for whatever position he's in," said Richard Schaberg, a partner at Hogan Lovells, who worked with Curry when he was a state regulator. "So he won't come to the OCC with a vestige of states' rights agenda. He will come there and say, 'OK, my job is in the federal comptroller's office,' and he will execute that as he sees appropriate."

Though Curry was an avid defender of states' rights as a state regulator, he was never a lightning rod or a firebrand. He has a reputation as thoughtful and fair, and is highly regarded by bankers and consumer advocates alike.

Most agreed his nomination is likely to be well received, and he has the benefit of having already been confirmed by the Senate. But that process could be complicated by the administration's very public disagreement with the OCC over its interpretation of preemption provisions under the Dodd-Frank Act.

The Treasury Department filed a scathing public comment letter last week on the OCC's proposed preemption rule, which the Treasury said violated the intent of Dodd-Frank.

Industry observers said preemption is likely to be a central issue in the confirmation hearing as lawmakers try to divine Curry's views.

"I'm sure he'll get tough questioning from both sides, and it will be fascinating to see if he takes a stand or parries and finesses," said Jo Ann Barefoot, a co-director at Treliant Risk Advisors.

People who know him said Curry would take seriously the responsibilities of the job, and wouldn't support something simply because the states supported it or because of political pressure.

"I don't think he'd accept the job if it was to lessen the value of the national bank charter, so he's not going to do that," said Cornelius Hurley, a banking professor at Boston University and a former Fed lawyer who has known Curry for years. "But at the same time, I think Tom would realize that the comptroller of the currency has not been the most aggressive enforcer, particularly when it comes to consumer issues, and so I think he might take a fresh look at that as well."

Curry has been a member of the Federal Deposit Insurance Corp.'s board of directors since January 2004. Before joining the FDIC board, he was Massachusetts' commissioner of banks from 1990 to 1991 and from 1995 to 2003.

Curry was an outspoken critic of federal preemption during his time as a state regulator.

Testifying before the House Banking Committee in 2000, Curry called on Congress to review how federal regulators use preemption.

"As part of the public comment process, the federal agencies should articulate a justification for preemption and explain how similar existing federal protections adequately protect consumers, or when no federal regulation exists, why the preempted state law is not necessary for consumer protection," said Curry, who was chairman of the Conference of State Bank Supervisors at the time.

State banking regulators are often the first to spot trends and problems, and the first to develop safeguards to protect consumers, Curry said. "The states are best positioned to serve this role," he said, "because it is at the state level that both businesses and consumers have proximity and expect access and accountability from their regulatory agencies."

Curry opposed an effort to expand preemption powers to state regulators in 2005 in his second year as a FDIC director. The Financial Services Roundtable had asked the FDIC to pursue a proposal that would allow state regulators to preempt other states' consumer protection laws. But Curry sided with the acting comptroller, Julie Williams, who said the FDIC lacked authority to pursue the plan. Curry said he was not satisfied with the FDIC general counsel's opinion, and voted to table debate on the issue.

"We ought to get things in order before we act, and I'm not ready to do that," he said.

But comptrollers rarely ease preemption standards, regardless of who appoints them, observers said.

"The OCC's position is so embedded in the years in which they've worked on this preemption issue, it would be very hard for them to radically alter their course on that," Schaberg said.

Robert Cook, a partner at Hudson Cook LLP, said there has been little variance in the position of various comptrollers over the past 30 years.

"There has been a maturation of the theories behind preemption, and … the various comptrollers over the last couple of decades have expanded their interpretations of preemption, but their ultimate views haven't changed that much," Cook said.

To be sure, Art Wilmarth, a professor at George Washington University Law School, said the variations among previous comptrollers can be meaningful. For example, Bob Clarke, the comptroller from 1985 to 1992, took a more mainstream preemption position, Wilmarth said.

"Although preemption didn't stop, it was far more nuanced and moderate, and it wasn't pushed to the end of the envelope every time," said Wilmarth, a consultant to the Conference of State Bank Supervisors. "I would hope that someone like Commissioner Curry would take sort of a similar view that, 'OK, I'm not going to give up preemption, but I'm not going to push it every last possible inch.' "

But Laurence Hutt, a partner with Arnold & Porter LLP, said the Treasury letter could be an attempt to change that dynamic.

"It may be a maneuver designed to force whoever may be nominated to move in a certain direction more than they otherwise would have," Hutt said.

In the end, the comptroller's interpretation of preemption may not be as critical as it once was, observers said.

More parties will be weighing in on the issue than ever before, including the new Consumer Financial Protection Bureau, which could put more pressure on the agency. The Dodd-Frank Act included some language that required the OCC to consult with the CFPB on certain preemption determinations.

"There's a political dynamic to it, where it's no longer just the OCC against the states or Washington against the states," said Jeffrey Taft, a partner with Mayer Brown LLP in Washington. "It could become everybody against the OCC and the industry."

Although many believed Dodd-Frank would settle the preemption question, lawyers and former OCC officials have concluded the issue will once again be left to the courts to decide.

"When you look at the number of thoughtful people who believe that preemption was really not that much affected by Dodd-Frank, to the Treasury general counsel who obviously thinks that it was, you've got a lot of very bright people coming down on different sides of the issue," said Clarke, the former comptroller and now a partner with Bracewell & Giuliani. "That says to me that at the end of the day, it's going to get litigated again, and the courts are going to end up interpreting what Congress meant when they adopted Dodd-Frank."