The National Association of Realtors is worried that a new federal banking rule that allows national banks to skirt state banking laws might also enable banks to ignore state real estate licensing laws if they are allowed to enter the brokerage business.

But NAR’s concern is misplaced, according to the Office of the Comptroller of the Currency, the federal agency that regulates national banks. The agency’s preemption rule, which took effect this month, has nothing to do with real estate brokerage.

The OCC’s final preemption rule says national banks and their operating subsidiaries must follow national banking laws and operate under the regulatory authority of the OCC and are exempt from state banking laws.

“Under existing regulations that were not changed in today’s rulemakings, both the visitorial powers rule and the preemption regulation apply to operating subsidiaries of national banks. They do not apply to financial subsidiaries, nor do they authorize any new powers or activities, such as real estate brokerage,” the agency said in a statement announcing the finalized rule.

NAR has urged the OCC to adopt a rule that would prohibit national banks from entering real estate brokerage. The association presumes that if national banks were allowed to sell real estate under a regulation proposed by the U.S. Treasury, the OCC would exempt them from state real estate licensing laws as well as state banking laws.

“Taken together, these two regulations could create the real estate industry’s worst nightmare,” NAR President Walt McDonald said in a statement. “The largest banks in the nation could control large segments of the real estate industry, both brokerage and finance, with no state regulation.”

But NAR is confusing two laws that legally have nothing to do with each other.

Edward Yingling, EVP of the American Bankers Association, pointed out that the proposed Treasury regulation would allow financial subsidiaries to sell real estate, but financial subsidiaries don’t fall under the guidelines of the OCC’s preemption rule. He suggested NAR is being “either paranoid or legally incompetent.”

“The fight (banks) have with the Realtors is whether or not (banks) can sell real estate through a financial subsidiary. The OCC preemption doctrine cannot apply to a financial subsidiary,” he said.

The federal preemption rule states that the OCC has authority over national banks and their operating subsidiaries. It does not include financial subsidiaries, which are different entities.

“They’re mixing them up, and the OCC has said they’re mixing them up,” Yingling said.

Even if the regulation that would enable banks to sell real estate ever goes forward, it would apply only to financial subsidiaries. It would have no effect on the OCC’s preemption rule, nor would the preemption rule have any effect on it.

NAR was among many groups that opposed the federal preemption rule. State banking authorities and consumer protection groups argued the lack of state authority compromises consumer protection from deceptive lending practices.

Opponents voiced their opinions on how the preemption rule might affect consumer protection at a Congressional committee last month. The OCC defended its position and argued that national banks are already subject to federal banking laws and that subjecting them to state laws imposes unnecessary compliance costs and burdens.


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