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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 America
1 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 Petitioner’s 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 Petitioner’s request would be bad public policy and bad for consumers.

The granting of Petitioner’s 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 Petitioner’s 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 Petitioner’s 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
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. 


Last Updated 05/24/2005

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