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FDIC Federal Register Citations

Comerica Bank

May 16, 2005

Robert E. Feldman, Executive Secretary
Attention: Comments/Legal ESS
Room 3060
Federal Deposit Insurance Corporation
550 17th Street, NW

Washington, DC

Re: Petition of the Financial Services Roundtable for Rulemaking to Preempt Certain State Laws

Dear Sir:

Comerica Bank, Detroit, Michigan, a bank organized under the laws of the State of Michigan, hereby submits this written statement in support of the above-referenced petition to be considered at the hearing on the petition scheduled for May 24, 2005.

Comerica Bank’s parent company, Comerica Incorporated, is a member of the Financial Services Roundtable which filed the above-referenced petition, and the petition was filed with the knowledge and full support of Comerica Incorporated.

Comerica Bank operates nationwide with full service branch offices in five states (Michigan, California, Texas, Florida, and Arizona) and loan production offices, trust offices, and trust representative offices in many other states. Comerica Bank also maintains a relationship with a number of major securities brokerage firms under which the bank offers and provides personal trust and loan services to customers of such firms nationwide. As a state-chartered bank doing business on an interstate basis, Comerica Bank thus has considerable experience with the issues that it is the intent of the above-referenced petition to help resolve and a strong interest in their favorable resolution.


The petition requests that the Corporation adopt rules providing greater parity for interstate activities of state-chartered banks and national banks.

More than a year ago (January 13, 2004), the Office of the Comptroller of the Currency (the “OCC”) adopted a rule (12 C.F.R. 7. 4007-7.4009) to the effect that the National Bank Act preempts many state laws governing deposits, lending, and bank operations, and, thus, national banks and their operating subsidiaries are not subject to such laws. The basis for that rule is not that the National Bank Act preempts state law because the National Bank Act has occupied the field in those areas, but rather that such laws are preempted where they obstruct, impair, or condition the full exercise of powers conferred by the National Bank Act. While adoption of that regulation was not without considerable controversy and notoriety, it has not been overturned by either judicial or legislative action.

State-chartered banks enjoy no such preemption. It appears that there generally is no such legal basis for such broad preemption for state-chartered banks. However, as the Financial Services Roundtable has asserted, there do exist federal statutory bases for at least limiting the application of state law to interstate activities of state-chartered banks to home state law.

One of those federal statutory bases is Section 24(j) of the Federal Deposit Insurance Act, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 as amended in 1997 (12 U.S.C. 1831a(j)(1)) (Of course, the Corporation has considerable rulemaking authority under the Federal Deposit Insurance Act.) That statute provides that home state law is to apply to host state branches of interstate state-chartered banks where host state law does not apply and that the only host state laws that are to apply are those that apply to out-of-state national banks. In light of the aforementioned OCC regulation preempting state laws, many host state laws do not apply to out-of-state (or in-state) national banks, and, thus, Section 24(j) would seem to require the application of home state law to the host state branches of interstate state-chartered banks in such case.

The other federal statutory base is Section 104(d) of the Gramm-Leach-Bliley Act which expressly provides that no state, by statute or other action, may prevent or restrict a depository institution or its affiliate from engaging in any activity authorized or permitted under that Act, other than certain insurance activities.

The petition does little more than ask the Corporation to adopt rules implementing Section 24(j) and 104(d).


Obviously, in offering services to banking customers, being subject to a single set of laws is considerably less costly and burdensome to a bank than being subject to the laws of many states. Different state laws applying to the same service often are different and in some cases inconsistent and even contradictory. In order to minimize cost and burden a bank may choose to follow the most restrictive state law in order to minimize the variations in state laws that affect its business, which means that the law of the most restrictive state often has extra-territorial effect. In other cases, bank counsel may devise convoluted inefficient ways of offering a service in order to avoid the application of a single particularly burdensome state law. In all such cases, in our increasingly litigious age, the bank is exposed to the risk and costs of lawsuits over obscure and ill-defined areas of multiple laws. A bank’s willingness to create and innovate is constrained by these risks. The bottom line is that doing business in an environment in which a firm is subject to multiple state laws has an economic cost to the bank, its customers, and the economy.

Again obviously, that cost is substantially reduced if the firm may look to a familiar body of a single state’s laws that govern its activities. It can operate under a much simpler business model and can reliably make decisions confident as to the consequences of those decisions, something that is much more difficult in a multi-state law environment.


National Bank Preemption Constitutes Exemption

As discussed above, national banks have, in recent years, come to enjoy a status in which many state laws do not apply to them because such laws are preempted by the National Bank Act. Since the National Bank Act does not occupy the field in these cases, the preemption of state law in these cases would appear to exempt national banks entirely from preempted state legal requirements with the substitution of no other legal requirement being imposed on such banks.

National Bank Exemption from Both Host State Law and Home State Law

Indeed, national banks are not only exempt from host state laws governing deposits, loans, and operations, but are also exempt from home state laws on those subjects.

National Bank Exemption Not Limited to Interstate Activities

That exemption is not just limited to national banks operating interstate, but is applicable to all national banks.

National Bank Enforcement Authority Limited

In addition, the enforcement of those limited state laws to which national banks may be subject is limited to the Office of the Controller of the Currency and withheld from local state enforcement authorities. It has been asserted that even criminal conduct by a national bank may not be challenged by a state attorney-general and that enforcement action against a national bank may not be heard in a state court.

Competitive Effect

Obviously, state-chartered banks compete every day in virtually every geographic and product market with national banks. Those national banks, to the extent they are exempt from state laws, enjoy a substantial cost advantage over state bank competitors in that the national banks not only do not need to hire compliance professionals to advise them on how to comply, or otherwise ensure compliance, with myriads of state laws, but also need not conform their activities to every one of the considerable number of requirements of those laws.


The Financial Services Roundtable petition, in contrast to the current state of exemption from state law enjoyed by national banks, is quite a modest proposal.

No Exemption Requested from Home State Law

The petition does not ask that state-chartered banks be exempted from the applicability of home state laws as national banks are, but rather merely asks that such laws apply in host states. That is what federal statute expressly provides in the case of banks with interstate offices. Most state law regimes generally cover the same subjects and, thus, as a practical matter, this would not leave host state citizens without state law protections, as might be the case with national banks, but gives the protections of the home state law, and also simplifies the compliance burden imposed on state banks operating in multiple sates.

Limited Class of Beneficiaries, i.e. Interstate State Banks, Not All State Banks

Whereas all national banks are exempt from obstructive, impairing, or conditioning state laws governing deposits, lending, and operations, the Financial Services Roundtable petition merely asks that a limited number of state-chartered banks, those with interstate activities, receive the benefit of the petition. Some may suggest that this is a large bank issue only and that the number of banks affected by this therefore would be quite limited, and that it does not benefit community banks. That is not the case. Many state-chartered community banks are located near state borders and compete in geographic markets that cross state lines. They are today subject to multiple state laws and the same qualitative burden to which larger banks are subject. The Financial Service Roundtable’s petition would not only apply home state law where a state bank has interstate offices as required by federal statute, but would go beyond that and permit the application of home state law to any interstate activity of a state bank. Thus, small independent community banks with customers in interstate markets would benefit from your affirmative response to the petition even if they do not operate offices in more than one state.

No Limit on Enforcement Authority

Whereas national banks are only subject to the visitorial powers of the Office of the Comptroller of the Currency and not to enforcement actions by state law enforcement authorities (and some have even suggested state courts), the Financial Services Roundtable proposal makes no request for exemption from such enforcement authority.

Some Competitive Disadvantage Would Remain

Thus, were the Financial Services Roundtable modest proposal to be adopted, state-chartered banks would remain subject to a competitive disadvantage to national banks. Nonetheless, the Corporation would have gone a long way toward relieving the compliance burden that interstate state banks bear.


The Corporation’s Notice proffers a number of specific questions about the effect of adoption of the Financial Services Roundtable’s proposal.

The Dual Banking System

The Corporation’s Notice of Public Hearing expressly requests public views on whether adoption of a rule in these areas is necessary to preserve the dual banking system. Since the OCC’s adoption of its preemption rule in January, 2004, major state-chartered banks (J.P. Morgan Chase, HSBC) have converted to national charters. That would not appear to be coincidental, and this would suggest that applicable state law is an important consideration to some banks in charter selection.

Impact On Consumers

The Corporation’s Notice also asks what the impact would be on consumers if a rule were issued by the Corporation. We believe that the impact on consumers would not be negative. Most states have consumer protection laws. The problem is that they are not consistent with one another. Permitting an interstate state-chartered bank only to look to its home state law would not normally deprive consumers of protection.

Some speculate that states, in order to attract bank home offices will weaken their existing consumer protection laws in “a race to the bottom”. That speculation is extraordinarily ill-founded. It assumes base motivations on the part of not just a single state official which might be possible, but on the part of a majority of state legislators in given states, which, as a practical matter, is quite unlikely. It also assumes that state legislatures will disregard the interests of well-organized voting consumers which recent history has shown has not been the case as a matter of fact. Finally, it also disregards the intangible historical ties and allegiances that many state banks feel to their home states and chartering authorities.

Some might suggest that there is something improper about depriving consumers in a host ate of the benefits of laws enacted by their legislature and subjecting them to laws enacted by legislatures from other states. However, that “bridge was crossed” long ago when Congress adopted laws permitting banks to export the usury ceilings of their home states, and there has not been any noticeable decline in consumer protection.

We understand that some opponents of the proposal are concerned about predatory lending and are concerned that a home state might not have a predatory lending law, while a host state might have such a statute and, thus, such opponents believe that adoption of the proposal would deprive host state consumers of the protection of predatory lending laws. We do not believe that most states have predatory lending laws (our home state, Michigan, does have such a statute), and, thus, by its terms, this concern would be limited to those few cases where a state bank from a home state without a predatory lending law has interstate operations in the few states with such a law. Most states have unfair and deceptive practices laws, and such laws can and should be used against predatory lenders, and, thus, in the limited cases where a banks’ home state has no predatory lending law, but a host state does, the home state’s unfair and deceptive practices statute would protect consumers in the host state, were the proposal to be adopted. No discussion of predatory lending would be complete without the usual disclaimer that banks are not the culprits in predatory lending abuse; non-bank lenders are.

We, like many, believe that the answer to predatory lending is a national standard. However, while there is no logical or legal basis for such an exception and while such an exception would be unfortunate and poor precedent that we would nit support, we would have no objection to the Corporation’s adopting the proposal, but making an exception for host state predatory lending laws such that they would apply to interstate operations of state banks.

Implications For State Banking Regulation

The Corporation has also asked specifically what the implications the proposed rule might have for state banking regulation. Currently, most state banking regulators, working through the Conference of State Bank Supervisors, have entered into cooperative agreements governing regulation of interstate state-chartered banks. These agreements govern such things as the sharing of information, allocation of costs, and even delegation of enforcement authority. We would expect that, were the Corporation to adopt the proposed rule, state banking supervisors would increase the cooperation they have already demonstrated.

Competitive Balance

The Corporation also expressly asks whether the measures urged by the Petitioner, Financial Services Roundtable, would achieve competitive balance. We regret that they would not. As explained above, national banks would remain totally exempt form certain state laws while their state-chartered counterparts would remain subject to home state laws. Also, no state authority would be able to enforce any law against a national bank as visitorial authority is exclusively in the OCC while state banks would remain subject to the enforcement of home state laws by both host and home state authorities. However, while competitive balance would not be achieved, the balance would be considerably more equitable than it is today.

Alternative Mechanisms

The Corporation also asks whether there are alternative mechanisms to achieve the policy goals urged by the Petition. There would appear to be no alternative mechanism that would provide the same geographic scope, certainty, low cost, and timeliness as action by the Corporation. Litigation would be of limited geographic effect, uncertain, costly, and time-consuming. Additional Congressional action, while providing national scope, would suffer from the latter three disabilities.

Role of Congress

The Corporation’s Notice also specifically asks whether the issue of competitive parity in interstate operations should be left to Congress. That is not necessary as Congress has already acted on that issue. It was Congress, of course, that enacted the 1997 amendment to the Riegle-Neal Interstate Banking and Branching Efficiency Act. By doing so, Congress recognized the need for competitive parity and expressly provided that “the laws of a host State ... shall apply to any branch in the host State of an out-of-State State bank to the same extent as such State laws apply to a branch in the host State of an out-of-State national bank”. Recognizing that host State laws might not apply to a national bank, Congress in that amendment further expressly provided that in such case, “home State law shall apply to such branch”. It is difficult to imagine how Congress could have more clearly expressed its intent here. The petition filed by the Financial Services Roundtable does not ask that the Corporation go very far beyond that expression of Congressional intent.

States’ Legitimate Interests Not Undermined

The Corporation has also expressly asked for comment on whether states have a legitimate interest in how banks conduct business within their borders that would be undermined by the Petitioner’s request. Of course, every state has a legitimate interest in how a bank conducts its business within that state’s borders. However, there is no way that state interest would be undermined by the Petition. That legitimate interest is in the safety and soundness of the banks operating within their borders so that none of its citizens loses deposited funds. No home state banking commissioner has a different interest in safety and soundness than any host state banking commissioner, and Congress, in permitting interstate banking implicitly acknowledged that. The legitimate interests of every host state bank commissioner in how out-of-state state banks conduct themselves within that host state’s borders today are dependent on the skills and attentiveness of the home state supervisor, and that is codified in the cooperative agreements that most state bank supervisors have signed with one another.


We very much appreciate the Corporation’s serious consideration of the petition and this opportunity to support it. Adopting the proposal would be a modest, but meaningful, step toward remedying the disparity between national banks and state-chartered banks conducting interstate operations.

Best wishes,

Julius L. Loeser

Last Updated 05/26/2005

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