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22-Sept-99

The Honorable Phil Gramm, Chairman

The Honorable Paul Sarbanes, Ranking Member

Senate Banking Committee Dirksen 538

U.S. Senate

Washington, DC 20510

RE: Pending Nomination of John Hawke to be Comptroller of the Currency

Dear Chairman Gramm and Senator Sarbanes,

We understand that the committee will vote Thursday, 23 September on the nomination of John Hawke to be Comptroller of the Currency. On behalf of some of the nation’s leading consumer organizations, we write to bring to your attention our grave concerns about the longstanding conduct of this agency regarding the preemption of state consumer protection laws. We hope that you will enter our concerns into the record. We urge the committee to use the opportunity of Mr. Hawke’s nomination to enter a new era of increased scrutiny of the Office of the Comptroller of the Currency’s activities pertaining to enforcement of consumer laws. In particular, we are concerned with those activities that appear to subvert Congressional intent that national banks should, in fact, comply with stronger state consumer laws that do not conflict with other federal laws.

In our view, the OCC’s actions have hurt competition, raised prices for all bank customers, and even appear aimed at allowing usurious payday lenders to partner with national banks to avoid state laws that protect consumers from their triple-digit interest rates.

While we began to document these activities as long ago as 1992, they appear to have continued under each successive comptroller, including Mr. Hawke, in his role as acting comptroller. Here is the background on our concerns.

Despite the lack of a federal statute requiring banks to offer low-cost lifeline checking accounts, the OCC, in 1992, preempted a NJ lifeline banking law. That preemption was a major impetus for language inserted in the 1994 Riegle-Neal Interstate Branching Act setting a higher bar for preemption of consumer laws. That law imposed a new Administrative Procedures Act-like notice and comment requirement on the OCC before it preempted state consumer, CRA and anti-discrimination laws.

The Conference Report of the Riegle-Neal Interstate Branching Efficiency Act stated that the Congress found the OCC had gone too far, especially when it preempted that New Jersey Checking Account law of 1991.

Generally, State law applies to national banks unless the state law is in direct conflict with the Federal law, Federal Law is so comprehensive as to evidence the Congressional intent to occupy a given field, or the State law stands as an obstacle to the accomplishment of full purposes and objectives of the federal law...

...the Conferees have been made aware of certain circumstances in which the federal banking agencies have applied traditional preemption principles in a manner in which the Conferees believe is inappropriately aggressive, resulting in preemption of state law in situations where the federal interest did not warrant that result. One illustrations is OCC Interpretative Letter #572, dated January 15, 1992, from the OCC to Robert M. Jaworski, Assistant Commissioner, New Jersey Department of Banking...In the case of Interpretive Letter #572, it is the sense of the Conferees that the fact that the Congress has acknowledged the benefits of more widespread use of lifeline accounts through the Bank Enterprise Act did not indicate that Congress intended to override State basic banking laws, or occupy the area of basic banking services to such an extent as to displace State laws, or that the existence of State basis banking laws frustrated the purpose of Congress. (emphasis added).

In 1995, the NJ banking commissioner requested the lifeline preemption be rescinded. Subsequently, OCC filed a Federal Register notice requesting comments, as required by the 1994 Act, but, to our knowledge, has done nothing since to comply with Congressional intent.

Despite clear language in the Electronic Funds Transfer Act that allows states to regulate the fees charged for ATM use, the OCC has been active in two states, Iowa and Connecticut, seeking to subvert those states’ ATM surcharge bans. OCC has filed friend-of-the-court briefs and other motions seeking to prevent states from enforcing their ATM surcharge bans against national banks. While OCC has not yet written a direct preemption determination under EFTA, its aggressive actions in federal and state courts have aided and abetted national banks seeking to overturn these pro-consumer laws. In our view, if the OCC succeeds in its self-serving attempts to prevent states from enforcing their laws, it de facto preempts them in defiance of Congressional intent in both Riegle-Neal and EFTA.

On July 27 1999, several of the undersigned, along with other consumer groups, sent a detailed letter to Acting Comptroller Hawke, condemning the OCC’s role in allowing a national bank to make triple-digit interest rate, short term "payday" loans. That letter is attached. Many states prohibit usurious payday lenders from operating within their borders. To get around state usury laws, small loan interest rate caps, or bans on loans made by check cashers, companies are partnering with national banks to make payday loans. These banks claim the right to export home-state deregulated interest and loan fees across the country without regard for state law. For example, OCC permits the arrangement between Eagle National Bank and Dollar Financial Group, the second largest check cashing chain, to make payday loans at 456% APR in states such as Virginia and Texas that enforce their usury and small loan laws. The use of national bank charters by payday lenders to evade state consumer protections is a growing trend that should merit the attention of the Senate Banking Committee as well as the Comptroller.

Recently, it came to our organizations’ attention that the OCC had proposed several stealth changes to its rules in June (OCC Docket#99-08--Federal Register: June 14, 1999 (Volume 64, Number 113) Page 31749-31756). These rulemakings are quite significant. One change, on "messenger services," is designed to assist national bank partnerships with usurious payday lenders. In our view, the OCC ought to be looking for ways to prevent usury, not condone it. Another rule change proposed, on "visitorial" privileges, would make it impossible, by rule, for states to enforce consumer laws against national banks. By taking the field, the OCC would effectively preempt all stronger state consumer laws, even when no federal law exists to protect consumers at all. A copy of our comments on these matters is also attached.

Neither of these actions should have been proposed in a stealth rulemaking (that included neither issue in its Federal Register descriptive title). Yet that is the way the OCC likes to do business. Whether or not you agree with the policies of the OCC on these particular matters, we hope you would agree that these are major policy decisions that will affect the banking marketplace. These proposals, as well as the OCC's ongoing pattern of ignoring Congressional intent to construe consumer law preemption narrowly, should be the subject of major Congressional oversight hearings.

These anti-consumer, anti-states’ rights actions by the nation’s chief national bank regulator are troubling. They existed before Mr. Hawke took acting office, to be sure, but appear to have accelerated under his watch. In our view, the Congress made it clear in 1994 that state consumer protection laws should be subject to a higher preemption standard than other banking laws. Since then, the OCC has instead blatantly ignored Congressional intent on consumer law preemption. Meanwhile, it has itself failed to enact any rules of its own designed to protect consumers better. Worse, the known threat of OCC preemption, since the New Jersey lifeline decision, and the failure of the Congress to rein OCC in, has had a disturbing chilling effect on the consideration of other consumer banking laws by state legislatures.

We also believe that preemption provisions of the proposed Financial Modernization legislation would exacerbate the problems described here. Our organizations have repeatedly pointed out in testimony on these proposals that the scope of preemption in Financial Modernization is too broad. It is critical that the Conference Committee narrow the scope of state consumer law preemption before completing Financial Modernization. For example, a bank charter should not be used by the bank to evade state usury laws, small loan interest rate caps, or other consumer protection laws or permit non-bank entities to evade these laws.

While consumer groups have been encouraged by Mr. Hawke’s efforts on behalf of both the CRA and consumer privacy, we urge you and the committee to take a closer look at the OCC. Its preemptive actions appear to be in the interests of protecting its fiefdom, not protecting the public interest. We would be happy to provide you with additional details.

Sincerely yours,

Enc

Cc: Chairman James Leach and Representative John LaFalce

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