OCC Issues Final Rules on National Bank Pre-Emption and Visitorial Powers

Article excerpt

ON JAN. 7, THE OFFICE OF THE COMPTROLLER of the Currency (OCC), Washington, D.C., issued two final rules on national bank pre-emption and visitorial powers. The first final rule clarifies the extent to which operations of national banks and operating subsidiaries are subject to state laws. The second rule addresses the scope of the OCC's supervisory authority under federal law.

In the first final rule, the OCC clarifies the types of state laws that are pre-empted by the federal powers of national banks under the National Bank Act, revises the list of types of state laws that are not pre-empted and establishes new provisions to prevent abusive or predatory lending practices.

The pre-emption rule provides that state laws that "obstruct, impair or condition" a national bank's powers in the areas of both non-real estate- and real estate-secured lending, deposit-taking and other national bank operations are not applicable to national banks.

With respect to real estate-secured lending, the rule provides that state law limitations on the following activities do not apply to a national bank: licensing and registration (except for service of process); restrictions relating to private mortgage insurance or other credit enhancements; loan-to-value (LTV) ratios; terms of credit; the aggregate amount of funds that may be loaned on the security of real estate; escrow and impound accounts; security property; access to and use of credit reports; disclosures and advertising generally; processing, origination, servicing, sale/purchase of or investment/participation in mortgages; disbursements and repayments; and rates of interest and due-on-sale clauses (which are governed by other provisions of federal law).

The rule also lists state laws that "are not inconsistent with" the real estate lending powers of national banks and therefore would continue to apply to the activities of a national bank. The list includes laws dealing with contracts, torts, criminal law, homestead laws, rights to collect debts, acquisition and transfer of real estate, taxation and zoning.

The first rule also establishes an antipredatory lending standard that provides that national banks may not make consumer loans based on the foreclosure or liquidation value of a borrower's collateral, without regard to the borrower's ability to repay. While the OCC does not have legal authority to issue regulations defining particular acts or practices as unfair and deceptive practices under the Federal Trade Commission Act, it does have the authority to take enforcement actions when a national bank is found to have engaged in unfair or deceptive practices.

The new rules are OCC's response to numerous questions it has received about the extent to which state laws apply to national banks and the authority of state or other agencies to examine or take actions against national banks. National banks are already subject to a set of federal requirements, and the overlay of multiple state law standards would impose unnecessary and excessively costly burdens. …