Viewpoint: Electoral Tide, a Warning on Preemption

American Banker, December 15, 2006 | Go to article overview

Viewpoint: Electoral Tide, a Warning on Preemption


The oral arguments did not go well for preemption in the case of Watters v. Wachovia. Ten years ago the Supreme Court would have rubber-stamped another victory for the federal regulators and their licensee banks.

This time enough justices to provide a majority wondered aloud whether the time has come to let the states share more of the regulation of national banks.

Although the court might not decide that way, a new Congress almost certainly will. If the recent elections tell us anything -- in particular, Eliot Spitzer's landslide election as governor of New York -- the public wants the states to play a greater role in regulating the business sector.

They want their legislators to be like Spitzer -- defiant of the power of big business and its protectors in government.

This should be a warning to banks, because Gov. Spitzer undoubtedly will propose tough legislation to continue the effort to break the OCC's preemption power. Because of his tremendous national popularity, Congress will take action to facilitate his efforts.

To minimize the consequences of these risks, the banking industry has to adopt new strategies.

For starters, it must not try to save the status quo by flooding Congress or the states with PAC money. Virtually every post-election analysis identified political corruption -- the sale of government favors to corporate interests -- as the overwhelming reason voters stripped Republicans of control of Congress.

To regain the public's good will and command the respect the industry desperately needs in the coming legislative season, banks should ditch their PACs altogether.

The industry should also distance itself, as best it can, from the federal regulators, especially the OCC. The Spitzer position -- that the agency repeatedly abused its preemption authority -- will prevail in Congress. To argue otherwise is to invite Congress to investigate the role banks played in generating the abuse.

The industry's best strategy is to negotiate a shared preemption system -- a mix of federal control in some areas, state control in others, and whatever self-reforms the politics will bear.

By agreeing to a reduction of federal preemption, the industry will also be agreeing that states can require various changes to their products and business practices. But this should not be cause for excessive worry. Millions of other businesses accommodate a vast array of state laws governing contracts, fraud, advertising, disclosure, servicing, warranties, compliance audits, and so on.

Although the OCC is supposed to audit for compliance with state law, it has never taken the job seriously. In fact, it has never assembled the staff, budget, or skill base to do it even modestly.

Proof of the pudding was the Providian Bank meltdown five years ago that exposed the agency's failure to detect a decade of state and federal infractions. That failure largely explains why preemption is now threatened in the Supreme Court and Congress.

To save federal preemption, even in a reduced form, the industry has only two viable options. One is to accept more federal control; the other is to self-reform quickly.

The "more federal control" approach is crazy. Federal domination is the reason banks are in so much trouble. It is the source of many of their worst practices, from facilitating disclosure deceptions contrary to the Truth-in-Lending Act to usurping state laws that protect consumers and promote competition. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Viewpoint: Electoral Tide, a Warning on Preemption
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.