Federal Deposit
Insurance Corporation

December 13, 2005

Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429

Re: RIN 3064-AC95 (Interstate Banking and Federal Interest Rate Authority)

Dear Sir:

We are writing to comment on the Corporation’s Notice of Proposed Rulemaking that would recognize the Federal Deposit Insurance Act’s preemption of certain state laws and help establish greater parity between state-chartered banks and national banks in the conduct of interstate banking.

Comerica Bank is a state-chartered bank that operates interstate, its principal office being in the state of Michigan and branch offices being located in the states of Michigan, California, Texas, Florida, and Arizona. Accordingly, it would be directly affected by adoption of the proposed rule.

We strongly commend the Corporation for publishing the Notice and being responsive to the petition from the Financial Services Roundtable that prompted it. Comerica is an active member of the Roundtable and actively supported the filing of the petition.

I. APPLICABILITY OF STATE LAW

The Corporation’s Notice of Proposed Rulemaking does an excellent job of explaining both the legislative history of the amendment to federal interstate banking law known as “Riegle-Neal II” and the purpose of that amendment, that is, to protect the dual banking system by leveling the playing field for interstate state banks by subjecting them, as much as practicable, to the same applicable laws. Regrettably, Riegle-Neal II does not seem to have achieved that purpose as, since its enactment nine years ago, a number of interstate state-chartered banks have converted to national charters.

To the exent that interstate banks are generally larger banks and larger banks pose more systemic concern, the migration to national charters has decreased the ability of regulators of state banks, at both the state and federal level, to supervise and regulate large banks to limit systemic risk. From time to time, legislation has been proposed to simplify bank regulation and create a single federal bank regulator, which have never been enacted. One basis for opposition to such legislation has been the need for the Corporation and the Board of Governors of the Federal Reserve System to have bank regulatory responsibility. While such legislative proposals have never gained traction, one might wonder whether the functional equivalent of establishing a single federal regulator of large banks is being achieved by charter conversion decisions without legislation. The Corporation’s Notice of Proposed Rulemaking is a step toward parity and toward stemming the tide of charter conversions.

To the extent that the proposed rule does little more than implement a statute that has been the law of the land for nine years, it is surprising that there might be opposition or that such a modest proposition would engender controversy. Congress’ intent, as the Notice explains, was to promote parity, and, even with Riegle-Neal II and adoption of the proposed rule, interstate state banks would still lack parity with national banks in at least four ways: (1) state bank operating subsidiaries would still be subect to state laws and particularly host state laws; (2) activities of state banks (such as those conducted at loan production offices) would still be subject to the variety of local state laws in those states in which such banks do not have branches; (3) state banks would still be subject to the visitorial powers of every state law enforcement agency; and (4) state banks would still be subject to state lending and deposit laws (those of their home states), whereas national banks with which those state banks compete are subject to none of those burdens. Thus, national bank costs of doing business may be expected to be lower than those of state banks and this may translate into a pricing advantage for them. Nonetheless, the proposed rule is a step toward greater parity and should enable interstate state banks to provide services nationwide more efficiently, at lower costs, ultimately to the benefit of consumers of financial services.

A. Role of Congress

We also understand that some have suggested that Congress, rather than the Corporation, should decide whether preemption is appropriate. Such suggestions disregard the fact that Congress already made such a determination when it enacted the so-called “Riegle-Neal II” amendment, which expressly preempts state law. The proposed rule is a modest codification of Congressionally mandated preemption.

As the Corporation’s Notice of Proposed Rulemaking explains in a thorough analysis of the legislative history of “Riegle-Neal II”, Riegle-Neal II’s purpose was to give interstate state banks parity with interstate national banks, something its principal sponsor, Representative Marge Roukema, thought “critical to the survival of the dual banking system”. She cited the risk that, without Riegle-Neal II, state banks likely would convert to national charters. Robert Representative LaFalce explained why when he recognized that, without Riegle-Neal II, “the national bank regulator has the authority to permit national banks to conduct operations in all the States with some level of consistency [,but i]n contrast, ... State banks branching outside their home State must comply with a multitude of different State banking laws in each and every State in which they operate.” Representative Roukema expressed the reasonable consumer protection preference that home state law be followed by an interstate state bank rather than there “be no consumer protection at the State level”. The same reasoning led to support of the Riegle-Neal II legislation by the Federal Reserve Board, the National Governors’ Association, the Conference of State Bank Supervisors, and the Independent Bankers’ Association of America while the legislation was pending before Congress.

The Notice of Proposed Rulemaking indicates that opponents of the rule urge deference to Congress “in light of the unsettled status of the OCC and OTS preemption rules and activities”. The status of those rules may arguably have been unsettled at the time of the Corporation’s hearing into the petition that has led to the Notice of Proposed Rulemaking. However, that is no longer the case. At the time of the hearing, only one federal court (the U.S. District Court for the Northern District of Ohio in Abel v. Keybank USA, N.A.) had considered the validity of the OCC’s preemption rules. That court, of course, upheld the validity of those rules. In the last six weeks, however, a second federal court (the U.S. District Court for the Central District of California in Rose v. Chase Manhattan Bank USA, N.A.) has considered and upheld those rules. The rationale of both courts is that the OCC rules merely reflect U.S. Supreme Court precedents. We are not certain how many more federal courts have to consider the matter and uphold the rules and the Supreme Court rulings they reflect before critics will acknowledge that national bank preemption is not “unsettled”.

B. “Race to the Bottom”

Opponents of the proposal have suggested that, were it adopted, states would have an economic incentive to reduce regulation and consumer protection in order to attract state-chartered banks to re-locate charters to their states. We believe that such concerns are misplaced and exaggerated for many reasons.

First, any banking organization that would be so concerned about regulation and consumer protection laws that it would change its charter to another state is far more likely simply to convert to a national charter and avoid the physical and other problems of relocating headquarters and executives to another state. Indeed, such a bank would, under the current state of the law be much better off in achieving its goal of avoiding regulation and consumer protection laws by being a national bank to which no such state laws apply than moving to another home state where some state laws would still apply.

Second, such “race to the bottom” concerns also do a serious disservice to all of the well-intentioned state legislators, attorneys-general, and other public officials who consider it their primary mission to protect the consumers of their states. These state officials work very hard to protect their constituents (some might suggest that some of their efforts are misguided, although few would question their good faith). It is an insult to those state officials to suggest that they would abandon their efforts to protect their citizens and intentionally weaken the local legal environment to persuade banks chartered in other states to move their charters.

The Corporation’s Notice of Proposed Rulemaking indicates that at least one opponent of the proposal criticized “no rule” states that have chosen to eliminate consumer protections in favor of economic development. We doubt very much the existence of such regimes and would urge the Corporation to ask for the identity of such states and, if any is proffered, analyze whether, in fact such states have no consumer protections, which we very much doubt, or rather have consumer protections with which the opponent of this proposal merely has policy differences.

C. “Activity Conducted at a Branch”

The Corporation proposes to define the statutory reference to “branch” broadly because a national bank branch gets the benefit of preemption whether or not the entire activity is performed in its branch and Congress intended to grant state banks full parity. However, the Corporation does not define the term in its broadest sense. The Corporation proposes to define the term “activity conducted at a branch” as “an activity of, by, through, in, from, or substantially involving, a branch”. Apart from the uncertainty as to what the word “substantially” might mean, its use limits the breadth of the proposed definition. We respectfully submit that a national bank gets the benefit of preemption whether or not a branch is “substantially” involved if the branch is merely involved. in the activity, and, thus, the requirement that such involvement be “substantial”goes beyond the Congressional intent behind Riegle-Neal II. We would urge that the Corporation proceed by deleting the adverb “substantially” from the proposed definition.

D. Ascertaining What Laws Are Preempted

The ultimate determination whether the National Bank Act preempts a state law uniquely and properly resides with the courts. However, a state or national bank today may make its own determination that a state law is preempted and, acting on that belief, subject to its willingness to litigate that proposition and accept the consequences if it is wrong. Language in sub-section 362.19(c) to the effect that host state law would be inapplicable only in the event of a wirtten determination by federal courts or the OCC would purport to deprive state banks of the ability to risk their own decisions on this matter , and we wonder whether it might not be beter public policy to permit a state bank to take such risk (which, after all, is a risk that a national bank currently has the right to take and, we are, after all, talking about parity).

This language in proposed sub-section 362.19(c), we respectfully believe, would frustrate the purpose of the proposed rule and Riegle-Neal II in other ways. The proposed rule would subject interstate state banks to host state laws even if such host state laws do not apply to a branch in the host state of an out-of-State national bank, if there has not been a federal court or OCC determination in writing that the “particular” state law “does not apply to an activity conducted at a branch in the host state of an out-of-State national bank”. The former quoted language requiring written determinations for “particular” state laws would appear to require a case-by-case state law- by -state law determination and deprive interstate state banks the benefit of parity with national banks that benefit from the Comptroller’s general parity rules (12 C.F.R. 7.4007 -7.4009). The latter quoted language setting forth the nature of the required written determinations contemplates determinations that, to our knowledge, have never been made by any court or by the Comptroller. Of course, courts and the Comptroller have made determinations that state laws are preempted by the National Bank Act, but they have never, to our knowledge, made written determinations that a given state law “does not apply to an activity conducted at a branch in the host sate of an out-of-State national bank”. Thus, the language that has been proposed limits the benefits of a remedial satute, Riegle-Neal II, despite the Notice’s repeated invocation of the need to construe remedial statutes broadly.

We would respectfully submit that any need for the Corporation to defer to judicial or Comptroller determinations could be implemented without these negative consequences by deleting the word “particular” and changing the quoted phrase to read “such law is not applicable to national banks”, which tracks the careful language of the Comptroller’s preemption rules. Thus, we would suggest that the first sentence of proposed Section 362.19(c) to read:

(c) A host State law does not apply to an activity conducted at a branch in the host State of an out-of-State, State bank to the same extent that a Federal court or the Office of the Comtroller of the Currency has determined in writing that such law is not applicable to national banks.

II INTEREST PERMITTED FOR INSURED STATE BANKS

A. Location

The proposed rule does not appear to comport as closely to the Corporation’s General Counsel’s Opinion 11 as the text of the Notice suggests. Opinion 11 appears to permit an interstate state-chartered bank to apply the usury law of the state in which any of the three non-ministerial functions (i.e. (1) where the loan is approved, (2) where notice of approval emanates, (3) where proceeds are disbursed) is performed. However, the proposed rule does not cover the situation in which one or two of the non-ministerial functions may be performed in one host state and the other one or two in another or other host states, other than, in (c)(2), to provide that home state law would apply in such case. Our understanding of Opinion 11 is that the law of any of those host states might also apply in that case.

A. Disclosure

The Notice of Proposed Rulemaking expressly invites comment as to whether an interstate state bank should be required to disclose to its borrowers that the interest to be charged is governed by applicable federal law and the law of the relevant state that will govern the transaction and whether there might be benefits or burdens resulting from such disclosure. Our method of extending consumer credit already contemplates providing the written disclosure that the Corporation is considering because such a disclosure, as the Corporation’s Notice mentions, was discussed in the Corporation’s General Counsel’s Opinion 11. We believe that providing such disclosure may benefit the borrower and his or her counsel by alerting them early to the applicable usury law and, thus, hopefully avoid misunderstanding or miscommunication and even later dispute. We have not found that providing the disclosure is at all burdensome.

Comerica Bank very much appreciates this opportunity to express its views on this important proposal. We would be delighted to answer any questions you might have on our thoughts.

Best wishes,

Julius L. Loeser