Magazine article American Banker

Treasury Sharply Criticizes OCC's Preemption Proposal

Magazine article American Banker

Treasury Sharply Criticizes OCC's Preemption Proposal

Article excerpt

Byline: Kate Davidson

WASHINGTON - The Treasury Department has unexpectedly allied with state regulators and consumer groups in their bid to force the Office of the Comptroller of the Currency to dial back its preemption standards.

The Obama administration sent a letter to the OCC this week objecting to a proposal that said Dodd-Frank left preemption standards mostly unchanged. But Treasury said the OCC was ignoring Congressional intent.

"Although Congress adopted a specific preemption standard in Dodd-Frank, the OCC's rule articulates a preemption standard that is broader than the language of the Dodd-Frank standard," Treasury General Counsel George Madison wrote to the OCC.

It is relatively unusual for federal agencies to weigh in on another regulators' proposal, but even more rare in this case. The OCC is nominally a bureau of Treasury, but the administration has only limited oversight of the agency.

At issue is language used by the OCC to preempt state consumer protection laws. The agency has said it can preempt laws that "obstruct, impair or condition" the business of banking.

But those words were not part of the 1996 Barnett Supreme Court decision, which Dodd-Frank said should be the preemption standard.

Although the OCC dropped the controversial language, it said all of its previous rulings stood intact.

In its letter, Treasury's Madison said that did not make sense.

"The proposed rule validates all prior preemption determinations, including those based on its deleted 'obstruct, impair or condition' standard," Madison wrote. "In our view, this position is contrary to Dodd-Frank."

Madison said the OCC was trying to ignore the law.

"The notion that the new standard does not have any effect runs afoul of basic canons of statutory construction; it is also contrary to the legislative history, which states that Congress sought to 'revise the standard the OCC will use to preempt state consumer protection law,'" he wrote.

The administration largely agrees with state regulators, who said it was obvious Congress wanted to ease preemption standards.

"I think it's fairly clear they missed large chunks of what Congress was asking them to do," said Buz Gorman, general counsel for the Conference of State Bank Supervisors.

The impact of the letter is unclear, but it likely means that the White House will accelerate its plan to appoint a replacement for John Dugan, who left the agency in August of last year.

Since then, Acting Comptroller John Walsh has come under heavy fire for the agency's interpretation of preemption and comments in London last week suggesting that regulators were going overboard in their demand for the biggest banks to hold even higher capital.

The administration is widely expected to nominate former Massachusetts Banking Commissioner Tom Curry for the job, but it is unclear how Curry, a registered independent, views the preemption issue. …

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