Federal Deposit
Insurance Corporation

Robert E. Feldman
Executive Secretary
Attn: Comments / Legal ESS
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

Dear Mr. Feldman:

The FDIC’s Notice of Proposed Rule Making regarding the preemption of certain state laws is an effort to address the competitive inequities between state-chartered banks and national banks. This inequity has developed over approximately the last ten years, primarily due to court decisions and regulatory actions favorable to national banks as well as the adoption by a few states of consumer credit codes with no meaningful consumer protections. These “no rules” credit codes are used to attract employment from national banks delivering credit card, and now automobile and mortgage credit on a nationwide basis without regard to the laws concerning consumer protection of the states where the consumer resides.

State banks and non bank lenders do not have the ability to offer uniform consumer credit products on a nationwide basis and are competitively disadvantaged. However, it is the consumer public that is the most disadvantaged. Competitive pressures have caused most credit card programs offered by national banks from “no rules” states to engage in abusive credit practices. The vast majority of credit card agreements issued in the United States contain terms in regard to interest rates and fees that can only be described as predatory. In the event that a consumer becomes ill, loses their job, goes through a divorce or otherwise becomes financially stretched, (even buying a home) the interest rate on all of their national bank credit cards can double or triple and the consumer may be billed “penalty fees” that are frequently multiples of their minimum payment. National banks that are primarily in the credit card business are the most profitable segment of the national banking industry, with a return on assets averaging several times that of community banks striving to meet the needs of their communities.

Financial regulators have a duty, not only to encourage a prosperous banking system, but to facilitate the delivery of consumer credit in a manner that is fair and equitable to the public. Both the banking industry in general and the public in particular are not well served by the present severely flawed statutory scheme. Indeed, a very strong argument can be made that the public is best served by a credit industry that can offer uniform financial products throughout the nation; provided there are basic consumer protections that assure that consumers are not abused by the predatory practices that exist today. These consumer protections should be enforced by both federal regulators and state regulators in regard to the citizens of their state.

The proposed FDIC regulation does nothing to address consumer abuse. Indeed, although there might be no need to change to a national charter, state banks would still be encouraged to move their national consumer credit operations to a “no rules” state and join the highly profitable predatory crowd. The “race to the bottom” for predatory practices would continue.

The proposed rule would also make interpretation of the laws applicable to bank transactions very complex. In Maryland, the state banks with the largest market share are headquartered in Georgia, North Carolina and New York. If this regulation is adopted and is lawful, the Maryland transactions of the Georgia bank would be governed by Georgia law, the Maryland transactions of the North Carolina bank would be governed by North Carolina law and the transactions of the New York bank would be governed by New York law. This is not a good situation for the Maryland court system.

It should be clear that under present law, only Congress can level the competitive playing field between national banks, state banks and non bank lenders. Only Congress can protect consumers from the predatory practices of national banks operating from “no rules” states. Rather than adopt a regulation that is of highly questionable legality and will do nothing to stop the race to the bottom in regard to consumer credit practices, the FDIC should encourage and join with other regulators in calling for federal legislation that will allow all lenders to offer uniform credit products on a nationwide basis, but with basic protections for consumers.

Sincerely,

Charles W. Turnbaugh

                                                                  Disclaimer
The opinions contained herein are the opinions of the writer and do not purport to state the position or opinions of the State of Maryland.