Reform Twists Both Ways: Preemption Deal Provides OCC Leeway

Article excerpt

Byline: Cheyenne Hopkins

WASHINGTON - The Senate approved an amendment Tuesday to the regulatory reform bill that would give federal regulators more leeway to preempt state laws but still allow state attorneys general some enforcement power over national banks.

The measure, approved 80 to 18, was softer on the banking industry than a previous version by Senate Banking Committee Chairman Chris Dodd, but would still be stronger than current law.

"The amendment preserves the ability of state attorneys general to be a backstop for the Consumer Financial Protection Bureau, and while the new bureau will be the main enforcer of its new rules, it preserves the role for the state AGs to ensure that consumers are never again put at risk because federal regulators are asleep at the switch," said Sen. Tom Carper, D-Del., who authored the amendment.

Dodd said the amendment was "really striking a balance."

"The Carper amendment preserves the state attorneys general's role protecting their citizens against abusive practices," he said.

Under Dodd's bill, the Office of the Comptroller of the Currency would be allowed to follow the so-called Barnett standard to preempt state laws on a case-by-case basis.

But banking industry representatives objected to the provision because it would also require the agency to take additional steps, including proving that the issue a state law is addressing is already being handled by a substantial federal standard.

The Carper amendment would remove such language from the reform bill, allowing the OCC more flexibility to preempt state laws.

However, Carper,under pressure from the White House and state advocates, was forced to drop his original plan to curb the state AGs' ability to enforce federal and state laws against national banks.

His amendment would allow state AGs to enforce new rules from a proposed consumer protection bureau against all banks, but it would prevent them from bringing federal class actions against national banks or charging them over activities conducted in other states.

State regulatory representatives argued it was a good compromise that allowed for national standards but preserved the rights of states to act. "Politics is about compromise, and while I think too much was compromised, the spirit of the amendment recognizes the important role that the states play while trying to address industry concerns about uniformity," said John Ryan, executive vice president at the Conference of State Bank Supervisors. "While it's a compromise, it feels like a fair compromise. …