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FDIC Federal Register Citations

Advanta Corporation

December 13, 2005 

Mr. Robert E. Feldman 
Executive Secretary 
Federal Deposit Insurance Corporation 
Room 3060
550 17th Street, NW
Washington, D.C. 20429 

Attention: Comments/Legal ESS RE: 12 CFR Parts 331 and 362 RIN 3064-AC95 

Dear Mr. Feldman:  

Statement of Interest 

This letter is filed on behalf of Advanta Corp. (“Advanta”) in response to the Notice of 
Proposed Rulemaking (the “NPR”) filed by the Federal Deposit Insurance Corporation 
(“FDIC”) (70 Federal Register 60099, October 14, 2005) seeking comments on the 
proposal to codify by regulations the current provisions of the Riegle-Neal Act 
Amendments of 1997 clarifying the state laws that apply to interstate branches of state 
banks and FDIC General Counsel Opinions on interstate interest rate preemption for state-
chartered banks. 

Advanta is the parent company of Advanta Bank Corp., an industrial bank organized under 
the laws of the state of Utah with its principle office located in Draper and insured by the 
FDIC. Advanta Bank Corp. is one of the nation’s leading issuers of MasterCards to small 
businesses. 

Comments 

The concept of a dual banking system has long been the bedrock of the nation’s system of 
financial institutions chartering and regulation. In recent years, the equilibrium of this 
system has tilted dramatically in favor of the federal charter—especially in light of various 
assertions of power by the Office of the Comptroller of the Currency (“the OCC”). The 
NPR merely brings the two charters back to their traditional parity. 

The aggressive enhancement of the regulatory regime for national banks now gives them a 
significant advantage in operating multi-state lending businesses—an area where state 
chartered institutions must contend with a hodgepodge of, often contradictory, state and 
local laws, ordinances and regulations. 

The NPR also reflects the intent of Congress expressed in the legislative histories of the 
Riegle-Neal Interstate Branching and Efficiency Act of 1994 and the subsequent Riegle-
Neal Amendments Act of 1997. 

Importantly, the NPR also proposes to codify, by regulation, the preemption of state usury 
laws under Section 27 of the Federal Deposit Insurance Act as it has been applied by a 
number of FDIC General Counsel opinions. Advanta supports this preemption. 

Like the OCC’s interest rate preemption rule, this proposal includes a “most favored 
lender” provision and addresses key issues surrounding the circumstances where a state 
bank is deemed to be “located.” Importantly, the proposal also addresses operating 
subsidiaries of state banks which engage in activities authorized for the state bank and 
gives them this preemption. 

This, also, is important to the continued relevance of the dual banking system as it gives 
effective parity to subsidiaries of state banks with national bank operating subsidiaries. 
 
The issue of FDIC regulatory parity is not limited to keeping pace with the OCC. The 
proposal also parallels Office of Thrift Supervision regulations implementing their 
respective statutory counterparts to section 27 by defining certain types of fees as interest 
even if they are not deemed to be interest under state law. The same is true of the OCC. 
Thus, this proposal ensures that the state charter retains its traditional parity both with 
national banks and savings institutions. In sum, the proposal prevents the state charter 
from coming in third in the regulatory marketplace. 

A number of commentators expressed concern that this proposal may result in states 
enacting lax laws in order to attract business as a “charter of choice” allowing the 
exportation of their laws to other states. This argument presupposes that state legislators 
will be reckless, that state banking regulators will be irresponsible and that the FDIC will 
no longer concern itself with consumer protection. This position is without merit, 
especially in light of the high standards of professionalism in state banking agencies. 

While the issue of federal preemption is always controversial in the context of our 
federalist system, in this case, preemption that results in enhancing what is fundamentally 
a state instrumentality is hardly a radical step. 

In contrast, Congress preempts state law with no apparent benefit to the states on a regular 
basis. For example, the Unfunded Mandates Reform Act of 1995 requires the 
Congressional Budget Office to review bills reported by Congressional committees for the 
presence of federal mandates on other levels of government, including preemptions of state 
laws. These are not unusual. Since 1996, the CBO has identified 5269 examples of 
intergovernmental mandates, noting that it “identifies explicit preemptions of state law as 
intergovernmental mandates; over the past nine years, about half of the intergovernmental 
mandates that CBO identified were such preemptions.” 1 (Emphasis added) 

In this case, the result of federal preemption, for once, will result in an enhanced state 
regulatory structure.  

Federal agencies preemptive power is not new—this proposal is under consideration in 
large measure because of the OCC’s aggressive assertion of its preemptive rights. 
Nevertheless, a number of commentators have raised objections to the proposal, suggesting 
the FDIC lacks the authority to preempt state laws by regulation. These comments are 
based on an overly-narrow reading of the FDIC’s (or, indeed, any federal agency’s) 
statutory authority. 

The Supreme Court has stated that "in proper circumstances, [a Federal] agency may 
determine that its authority is exclusive and preempt any state efforts to regulate in the 
forbidden area," City of New York v. FCC, 486 U.S. 57, 64 (1988). In describing these 
"proper circumstances," the Court has rejected the notion that the rulemaking agency must 
demonstrate that Congress specifically considered the question of regulatory preemption 
and decided to confer this authority on the rulemaking agency. Justice White, writing for a 
unanimous Court in City of New York, described the test of agency authority to preempt:  
It has long been recognized that many of the responsibilities conferred on federal agencies involve a broad grant of authority to reconcile conflicting policies. Where this is true, the Court has cautioned that even in the area of pre-emption, if the agency's choice to pre-empt "represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned." United States v. Shimer, 367 U.S. 374, 383 (1961), City of New York at 64
In this case, the legislative history of Riegle-Neal, as cited in the NPR’s overview of the proposed rule is clear: state and federal bank charters are to have parity. This proposal ensures that outcome. Again, in this case, the NPR’s preemption will result in enhancing the state charter. That is why the Conference of State Bank Supervisors, the professional society of state bank regulators and a historically states rights organization, is in favor of this preemption. Conclusion Far from breaking new ground, this proposal restores the equally balanced system of federalism envisioned by the Founding Fathers. As Thomas Jefferson said:
It is a fatal heresy to suppose that either our State governments are superior to the Federal or the Federal to the States. The people, to whom all authority belongs, have divided the powers of government into two distinct departments, the leading characters of which are foreign and domestic; and they have appointed for each a distinct set of functionaries. These they have made coordinate, checking and balancing each other like the three cardinal departments in the individual States; each equally supreme as to the powers delegated to itself, and neither authorized ultimately to decide what belongs to itself or to its coparcener in government. As independent, in fact, as different nations. 2 (Emphasis added).
Mr. Jefferson was correct. This proposal restores the necessary balance between two of what he would call “equally supreme” levels of government: the state and federal banking regulators. Much of what is today considered a normal part of banking services was first created by state chartered institutions or far-sighted regulators. For example, demand deposits, NOW accounts and ATMs were first offered by state chartered institutions. State regulators and legislators, via compacts, spearheaded interstate branching before Congress enacted the Riegle-Neal Act and succeeding legislation. Each of these enhancements benefited consumers and industry alike. Approval of the proposals in the NPR will ensure that the state system continues to exist and innovate. Thank you for the opportunity to participate in this vital rulemaking. Sincerely, Frank M. Salinger Vice President, Government Relations Advanta Corporation One Righter Parkway Wilmington, Delaware 19803 ____________________________________________ 1 Statement of Elizabeth Robinson, CBO Deputy Director, A Review of CBO's Activities Under the Unfunded Mandates Reform Act, before the United States Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia Committee on Homeland Security and Governmental Affairs (April 14, 2005) 2 Letter from Thomas Jefferson to Spencer Roane, 1821. Ford's Jefferson, Memorial Edition, 15:328

Last Updated 12/13/2005 Regs@fdic.gov

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