FDIC
Federal Register Citations Consumer Federation
of America
May 16, 2005
Robert E. Feldman
Executive Secretary
ATTN: Comments/Legal ESS
Room 3060
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: Petition for
Rulemaking to Preempt Certain State Laws
Dear Mr. Feldman:
The Consumer Federation of America1
submits these comments on the Petition for FDIC Rulemaking
Providing Interstate Banking Parity for Insured State Banks
filed by the Financial Services Roundtable (hereafter
Petitioner). CFA submits this written statement and also
supports the oral and written presentation to be made by the
National Consumer Law Center and the Center for Responsible
Lending.
Petitioner asks the FDIC
to issue regulations for state-chartered banks that mirror the
OCC and OTS preemption of state law regulations previously
issued by those two agencies. Favorable action on such a
request would federalize the operations of state-chartered
banks and place state-chartered banks in position to preempt
most state laws even in states where the bank is not chartered
nor has branches. It is our view, that federal law does not
permit the FDIC to act favorably on this request, nor would it
be good public policy or good for consumers for the agency to
do so. Thus, we urge the FDIC to deny Petitioners request.
Federal
law does not support the type of preemption sought by
Petitioner.
Petitioner primarily
relies on two federal banking laws -- Riegle-Neal II and
section 104(d) of the Gramm-Leach-Bliley Act (GLB Act) in
support of the scope of the preemption it seeks for
state-chartered banks. Petitioner, however, overstates the
scope and statutory intent of both of these laws.
The Riegle-Neal amendments of 1997 does not provide the
necessary platform for the sweeping approach to parity
Petitioner seeks. Instead, this law simply put
state-chartered banks on the same playing level with national
banks when the state-chartered bank branches into another
state. Riegle-Neal does not preempt state law outside of the
branching context.
Similarly, the Petitioner
overstates the relevance of GLB Act in the preemption
context. The provision referenced in the Petition exists in a
section of the Act related to permissible insurance
activities. By its very terms, this provision prevents states
from engaging in any activity authorized or permitted by GLBA.
However, since GLBA does not address the underlying powers or
preemption rights of state-chartered banks, this section would
not appear relevant to the issue before the FDIC.
The FDIC also asks in the Public Notice about whether the
agency has sufficient authority to extend preemption beyond
state banks to operating subsidiaries or others. Congress
has never explicitly granted authority to extend preemption
either to the operating subsidiary of state banks nor for that
matter to operating subsidiaries of national banks and thrifts
(notwithstanding the actions taken by the OCC and the OTS with
regard to these institutions). Consequently, CFA believes
that this issue is more properly addressed through the
Congress.
Granting
Petitioners request would be bad public policy and bad for
consumers.
The granting of
Petitioners request would have far reaching and profoundly
harmful effects on the ability of states to regulate
state-chartered banks and to provide consumer protections
needed for their citizens. It inevitably would foster an
environment that encourages a race to the bottom among
states to deregulate consumer protections and essentially rely
on federal law governing state banks. The likely scenario for
such actions would be result in the weakest home state laws
applying in all states and thus, in essence, become the
federalize standard for all state-chartered banks regardless
of where they are headquartered.
Further, granting Petitioners request all but establishes the
OCC as the de facto regulator for determining those
state laws that apply to state chartered banks beyond the
scope of interstate branching. Currently, states can choose
to grant parity to their own state-chartered banks if they
wish to put them on a level playing field with national banks,
at least within their state boundaries. However, federalizing
state-chartered banks means that the OCC would be able to
create federal law in areas where state laws are silent or
where the OCC chooses to assert that state laws are
preempted. The FDIC would be relegated to providing its
pro-forma concurrence once the OCC has acted on these
issues.
The practical effect,
therefore, of a favorable ruling on the pending Petition would
be to empower a new preemption process by providing the
regulatory basis for state-chartered banks to circumvent state
laws even in areas where federal law does not provide adequate
standards of consumer protections. This has occurred most
recently in the area of predatory mortgage lending, where
states have acted through state law to curb abusive practices
and to build upon weaker federal protections. Instead of
fostering stronger federal protections that apply to all
banks, the method proposed here would work the opposite way
enabling state-chartered banks to join federally chartered
banks to avoid a myriad of state consumer protections that
would otherwise apply to them. Such an approach would be
extremely harmful to consumers across the nation.
In sum, to grant the
Petitioners request overturns the long-standing statutory and
regulatory framework adopted by Congress. It is our view that
the FDIC does not have the authority to take such a far
reaching action, nor would it be wise as a matter of public
policy for the agency to do so. The FDIC must and should
continue to operate within the existing regulatory framework
set by Congress. Public policy changes of this sweeping
magnitude are best left to lawmakers.
Respectfully submitted,
Allen J. Fishbein
Director
Housing and Credit Policy
Consumer Federation of
America
1424 16th
Street, NW (suite #604)
Washington, DC 20036
1Consumer
Federation of America (CFA) is a national non-profit
organization, headquartered in Washington, DC, comprised
of 300 pro-consumer groups established to promote consumer
interests through public education, research, and
advocacy.