OCC Preempts in Ga. -- and Details Policy

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The Office of the Comptroller of the Currency surprised few observers Thursday when it overrode the Georgia Fair Lending Act, but it took the extra step of asserting broader preemption powers and proposing a new predatory- lending requirement.

The twin proposals -- a sturdier shield from state laws for national banks and a new consumer protection -- seem to contradict each other. But they reflect the bind the agency has been in for months. On one side, bankers want their national charters defended against conflicting state laws. On the other, consumer advocates, including Sen. Paul Sarbanes, D-Md., say regulators should do more to protect the public.

Bankers hailed the preemption, but the proposed anti-predator rule -- which would require banks to make loans on the basis of borrowers' ability to repay, not on the foreclosure value of collateral -- did not satisfy Sen. Sarbanes.

"I regret that the Office of the Comptroller of the Currency today has decided to preempt the Georgia Fair Lending Act, contrary to clear congressional intent that deference be extended to the states in the areas of consumer protection and fair lending," he said in a press release.

Dan McLagan, a spokesman for Gov. Sonny Perdue of Georgia, said that the OCC had "overstepped its bounds" and that state legislators had softened the law to avoid a preemption battle.

The governor's office will consult with its lawyers, Attorney General Thurbert E. Baker, and the Georgia Department of Banking and Finance on whether to sue to block the OCC's order, Mr. McLagan said.

But the OCC described the situation differently in its written order. It said that several parts of the Georgia law, such as provisions limiting interest rates and fees, were already preempted under agency rules and that the law interfered with national banks' ability to conduct business.

It also called the law bad policy. Such rules "introduce new standards for subprime lending that are untested, sometimes vague, often complex, and, in many cases, different from established and well-understood federal requirements," Comptroller of the Currency John D. Hawke Jr. said in a press release. The result is "to obstruct or, for practical purposes, to prevent national banks and their subsidiaries from making certain types of real estate loans, which causes an overall reduction in credit available to subprime borrowers. …