Opinion Article by
John P. Burke, Banking Commissioner
on New Federal Rules Preempting States

Published in the Hartford Courant,  
February 24, 2004

Remember the infamous Gunfight at the OK Corral?

Americans indeed have been fascinated with situations pitting black hats against white hats and with good always prevailing against evil. Well, something evil this way comes again. Only this time, the people of the State of Connecticut will likely have to pay the price for this feud. The evil is preemption of state rights.

The Office of the Comptroller of the Currency (OCC) in Washington, D.C., which is the primary regulator of nationally-chartered banks, recently put forth new rules which exempt national banks, and their state licensed subsidiaries, from most state laws. This preemption move gives the OCC the sole regulatory authority over national banks, meaning that states can no longer enforce their laws against nationally chartered banks. These regulations would shield all national banks and their subsidiaries from oversight, inspection and enforcement actions by any state agency. These revisions to the OCC's regulations have a profound impact on state regulators like myself who are charged with the responsibility for protecting users of financial services from unlawful or improper practices. To be effective, the Department of Banking must be able to require regulated entities and individuals adhere to the law, regardless of where they may have been chartered or by whom for that matter. Anything short of that jeopardizes the safety and soundness of our financial marketplace and the cost-efficient and effective regulation Connecticut citizens have been accustomed to.

Despite protests from members of Congress, governors, attorneys general, state legislators, state bank regulators and a host of others calling for Congressional oversight and review of the regulations before implementing them, the OCC chose to ignore the letters and telephone calls and even Congress, the governmental body that created the agency years before there was an OK Corral.

In essence, the OCC is asserting that most state laws, particularly predatory lending and similar consumer protection statutes, do not apply to national banks or their subsidiaries. That could mean check cashers, finance companies or leasing companies would not be subject to state laws or oversight just by being a subsidiary of a national bank. Even entities like car dealerships
are entering into agency relationships with national banks to avoid state laws including protections involving abusive installment sales practices. This concerns me a great deal. The banking department prides itself on how promptly and effectively we respond to complaints and reported cases of consumer abuse. The complaints we handle can range anywhere from errors in bank statements and escrow payouts to investment advisers or mortgage lenders who've sidestepped fiduciary accountability for their actions. On the state level, we have an organized system in place for dealing with these consumer protection issues.

However, with the implementation of the revised OCC regulations, gone will be the personalized assistance local state agencies currently provide to customers and clients of state-licensed businesses owned by national banks. Personally, I equate receiving a complaint from a Connecticut constituent to be just as serious as someone who may be in physical distress making an emergency "911" call. Imagine if that "911" call had to be routed through a national headquarters somewhere in our nation's capitol or even in Houston, Texas. "Houston we have a problem" may likely become a new governmental mantra for the OCC because that is where our complaints now have to be directed if they involve a national bank or a national bank subsidiary. State agencies can, and have, done the job faster and more efficiently because we are knowledgeable about state laws that need to be followed. The average consumer would have no idea whether a particular business is owned by a national bank. If they need to seek remedies their first instinct would be to call us - the state agency they can reasonably assume has jurisdiction over financial matters. Now we would have to redirect them to the OCC knowing very well that the OCC may tell the customer that they do not have the same legal remedies that state laws have.

For us, there's nothing magical or mystical about solving someone's problems. All it takes to satisfy consumer complaints and problems is plain old-fashioned caring and understanding and persistence on the part of our banking department staff. And, of course, laws and regulations we can count on to enforce.

Aside from the confusion caused to consumers, of even greater concern is this preemption threatens to weaken our country's dual banking system. It creates a continuing uneven playing field for national banks and state chartered banks. Kind of like a white hat versus black hat mentality. State and federal consumer protection laws provide a balance of fair and responsible supervision. Our federalist system was set up to protect citizens from a centralized government so that all banks regardless of their charter are subject to both state and federal laws.

Organizations including the Conference of State Bank Supervisors, the National Governors Association, the National Conference of State Legislatures and the National Association of Attorneys General all expressed their strong objections to these regulations. Clearly, many of their letters and calls were disregarded. I am disturbed that this decision was made without public debate and without any specific act of Congress. Such a decision should not be left in the hands of an unelected official who, with the stroke of a pen, seeks to sweep aside all state consumer protection laws declaring that national banks and their subsidiaries should dominate the entire territory.

I believe Congress must reestablish a balance of power between state and federal law and continue to set the policy that we as regulators implement. I strongly urge Congress to intervene and stop the OCC from making such dramatic changes to our banking system and to clarify the interaction of federal and state laws.

This shouldn't be a shoot 'em out between state and federal regulators and it shouldn't matter who is fastest at the draw. What should matter is we were both established for a purpose and in support of that purpose we can both continue to play a prominent role in the nation's economic life.
And we can both wear white hats.

Note: the op-ed article printed in the Hartford Courant was edited from this original submission.