October 7, 2003
State Lawmakers Attack Proposal to Undermine Dual Banking System
Congress urged to tell OCC to withdraw rule, hold hearings
WASHINGTON, D.C. - A proposed rule preempting all state authority over national banks and their diverse range of non-bank operating subsidiaries is being opposed by the National Conference of State Legislatures.
NCSL submitted its objection to the Office of the Comptroller of the Currency (OCC), which is considering the proposed change.
“The OCC proposal threatens to undermine the integrity of the dual banking system and moves toward a centralized, European-style regulatory model,” according to NCSL’s written comments signed by Delaware Representative Donna Stone and Illinois Representative Frank Mautino, chair and vice-chair, respectively, of NCSL’s Financial Services Committee. “The OCC proposal would sweep away virtually all state consumer protections and leave banking consumers across the country vulnerable to deceptive trade practices.”
Specifically, the OCC proposed rule would preempt all state laws that apply to the activities of national banks and their operating subsidiaries, unless Congress has enacted state-law standards in federal statute or particular state laws only have an ‘incidental’ effect on national banks.
Additionally, the OCC rule goes beyond national banks to bar states from licensing, examining and regulating state-chartered non-bank subsidiaries of national banks. This could effectively shield finance companies in the sub-prime market as well as title, leasing, mortgage, real estate and check cashing companies from state requirements and consumer protections.
Stone and Mautino point out that the United States’ dual banking system is critical to the strength and vitality of the national economy.
“Unlike in Canada, Europe and other developed countries, the American system has promoted the development of a decentralized banking market where banks of different sizes efficiently distribute credit to all sectors of the U.S. economy to serve the diverse needs of local, regional and national markets,” they said. “Regulatory decentralization is especially important to the strength of community banking, which helps disperse decision-making vital to small business lending and job creation across America rather than concentrated in the nation’s financial capitals.”
State lawmakers are urging members of Congress to tell the OCC to withdraw the proposal and exercise their oversight of the OCC to thoroughly review the far-reaching implications that would result from such a radical change to the nation’s banking system. In addition to policy objections to the rule change, NCSL believes the OCC lacks the authority to unilaterally preempt state authority.
NCSL is a bipartisan organization serving the legislators and legislative staff of the states, commonwealths and territories. Its mission is to improve the quality and effectiveness of state legislatures, foster interstate communication and provide the states a strong, cohesive voice in the federal system.
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