A backlash from consumer advocates and growing concern among state regulators over new federal banking rules that would void numerous state consumer lending laws for national banks prompted a Congressional committee to schedule a hearing that will examine the rules further.
The House Financial Services Subcommittee hearing to be held on Wednesday will require the Office of the Comptroller of Currency to justify publicly its decision to finalize the new rules prior to congressional review. The OCC this month announced rules that exempt national banks from state lending laws, including laws that curb abusive practices known as “predatory” lending.
“I am disappointed in the manner in which these rules were finalized,” Rep. Sue Kelly (R-N.Y.) said in a statement announcing the hearing. “Comptroller (John) Hawke has personally promised me that he will visit the subcommittee in late March as part of the subcommittee’s continuing oversight of the agencies within its jurisdiction.”
The hearing will enable regulators to share their opinions about the rules so the “significant change to banking regulation does not undermine protections for consumers,” she added.
The federal rules would go into effect Feb. 12.
New York Attorney General Eliot Spitzer has been one of the most vocal critics of the OCC rule, which he called “shamefully bad public policy” that disregards the dual banking system that’s been in place for more than 100 years. He alleges the OCC doesn’t have the states’ experience, expertise or resources to address consumer protection issues like predatory lending.
Spitzer already has challenged the rule in court. He filed a lawsuit last week in New York State Supreme Court against an operating subsidiary of a national bank. The lawsuit, New York v. First Horizon Home Loan Corp., alleges the bank illegally threatened to foreclose on a Rensselaer County resident’s home.
Spitzer’s office said in a statement that its attorneys attempted to resolve the matter with First Horizon before the lawsuit was filed. Bank officials told one of the attorneys they couldn’t discuss the matter because the OCC had told them not to talk to state attorneys general.
The case is expected to directly challenge the OCC’s new federal preemption rule.
Spitzer noted a bipartisan coalition of state officials opposed the federal regulations when the OCC proposed them in October. Indeed, all 50 state attorneys general submitted comments to the OCC opposing the proposed regulations.
The OCC defended its position. The agency argued that national banks already are subject to federal banking laws and that subjecting them to state laws as well imposed unnecessary costs and burdens.
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