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July 17, 1998
The Honorable Alfonse D’Amato
The Honorable Paul Sarbanes
Senate Banking, Housing and Urban Affairs Committee
United States Senate
Washington, D.C. 20510
Dear Senator D’Amato and Senator Sarbanes:
As you consider nominations for the Comptroller of the Currency, we want to urge you to ensure any candidate makes commitments to the consumer interest before his or her nomination is approved.
Over the past few years, the Office of the Comptroller of the Currency (OCC) has issued opinions and taken positions at odds with the interests and needs of consumers. In particular, the OCC has interpreted preemption overly broadly, issuing opinions that permit national banks to ignore important state consumer laws. Besides unreasonably limiting the applicability of existing state laws, the OCC’s strong pro-preemption stance has also had a chilling effect on state legislative consideration of new consumer laws. Despite broadening bank powers in the area of retail sales activities, the OCC has failed to issue regulations that address the current problems for consumers and potential abusive practices.
Any candidate must commit to issuing promised consumer safeguards for bank retail sales of investment and insurance products activities within one year and to reverse the OCC decision on New Jersey’s basic banking law and enunciate a preemption standard that is in line with traditional preemption principles. The following explains further these issues and our concerns:
The Need to Uphold State Consumer Protection Laws: As you know, the Office of the Comptroller of the Currency has issued opinions that permit national banks to ignore important state consumer protection laws such as basic banking laws. With the passage last year of H.R. 1306, which allows state-chartered banks branching into other states to avoid state laws whenever a national bank may do so, the need to rein in the OCC’s preemption activities becomes even greater. Now when the OCC gives national banks the green light to ignore consumer protection laws, state-chartered banks enjoy the same loophole, making the loss for consumers even worse.
We believe the OCC’s actions go way beyond the intent of Congress. In the Conference Report on the Riegle-Neal Interstate Branching Act, Congress reiterated the long-standing principle of state authority to regulate businesses operating within their borders and the limited circumstances under which such authority could be preempted. In the Report, the OCC was admonished for applying traditional preemption principles in a manner that was "inappropriately aggressive, resulting in preemption of State law in situations where the federal interest did not warrant it." (Conf. Rep. At 53)
With regard to the OCC’s opinion that rendered New Jersey’s basic banking law inapplicable to national banks, the Conferees specifically stated that there was no indication that Congress had intended to override State basic banking laws. Despite this admonishment of the OCC, the OCC has failed to act to reverse its earlier opinion declaring New Jersey’s law preempted under misapplied preemption principles.
Any candidate should commit to preserving the authority of states and to reversing the decisions that have trampled on state consumer protection laws. According to our preliminary review of the first modest OCC preemption report, for example, (as required by Section 2 of H.R. 1306) the OCC has exercised its preemption powers on a host of occasions since 1992.
Consumer Protections for Bank Sales of Insurance and Investments: Despite abundant evidence indicating the need for strong consumer safeguards to prevent deceptive and misleading practices when banks sell insurance and investment products, the OCC and other bank regulators have failed to take strong regulatory actions to put a stop to these practices. The guidelines these agencies issued are not enforceable and are not sufficient to ensure banks compliance, as the FDIC’s 1996 study, finding one in four banks surveyed failing to inform customers that certain financial products are not FDIC-insured, indicates.
Before Mr. Ludwig left office, in a letter to his fellow bank regulators, he pledged to push forward an interagency rulemaking process for retail sales protections. Unfortunately, it is unclear whether the interagency group is moving forward with rulemaking or whether they are simply engaged in a drawn-out process to assess whether there should be regulations. We believe it is essential that any nominee agrees to make rulemaking an immediate priority, setting clearly defined time goals for the issuance of regulations.
As we watch exorbitant fees create record profits for banks, we are very concerned that their expanding investment and insurance businesses will give them another avenue to price gouge consumers. While expanding competition in the market is a goal we endorse, any candidate should commit to strong consumer protections to help ensure consumers get meaningful choice and a fair deal from banks.
We hope that you will only support a nominee who has demonstrated commitment to the issues and needs of consumers and obtain commitments from any nominee to act on these areas within a certain time period. In a rapidly changing world of financial services, ensuring consumers are adequately protected should be the highest priority for Congress.
Sincerely,
Mary Griffin
Consumers Union
Edmund Mierzwinski
U.S. Public Interest Research Group
