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PIA Blasts OCC Preemption Regulations

WASHINGTON, January 20, 2004 - The National Association of Professional Insurance Agents (PIA) today criticized new rules issued by the Office of the Comptroller of...
January 20, 2004

Borowski Says Comptroller "Continues Relentlessly to Step Further Outside the Lines"

WASHINGTON, January 20, 2004 - The National Association of Professional Insurance Agents (PIA) today criticized new rules issued by the Office of the Comptroller of the Currency (OCC) that preempt state laws as they pertain to national banks.

The new regulations, announced January 7, state that only the OCC has the right to examine and take enforcement actions against nationally-chartered banks and their operating subsidiaries. The most immediate effect of the new rules would be to preempt all state laws restricting predatory lending practices, but their scope poses a potential threat to all related state consumer protection statutes.

"The Comptroller of the Currency continues relentlessly to step further outside the lines," said PIA Senior Vice President Patricia A. Borowski. "What we are seeing here, while truly outrageous, still comes as no surprise to PIA because of the OCC's decades-long long history of repeatedly attempting to appropriate to itself regulatory powers never granted to it by Congress."

"But the way we read these regulations, it does not appear OCC intends to take on insurance and securities regulators, as well. So banking entities that had recently called for federal-optional charter oversight for insurance should take heed not to over-play their hand through these rules changes." Borowski said.

Shortly after the proposed rule was issued last summer, fifty state banking departments sent comment letters to the OCC and 50 state attorneys general signed on to a separate letter. Most all of the comment letters were also forwarded to members of Congress, asking that the OCC proposal be withdrawn pending congressional review. OCC finalized the rule despite these letters, and without incorporating any of the recommended changes.

"Welcome to the world of constant battles over OCC preemption attempts over regulation," said Borowski. "OCC and its banking constituency have been clear that they are driving toward one goal: a single federal set of rules and one regulator, OCC, for all banks that engage in multi-state transactions for the business of banking and other businesses in which banks engage. Maybe now people will see that PIA has been right all along - that the issues we've objected to and litigated have not been self-serving, insurance competitor issues. Rather, they have always been serious, material matters of state-federal law and public protection." Borowski said.

New York State Banks Superintendent Diana L. Taylor said that with the new rules, "in a single stroke, Comptroller (John) Hawke has negated laws in every state in the union that were designed by elected representatives and their constituents to protect consumers from abusive lending practices." Taylor said such fundamental change is "too important an undertaking to leave to a single, unelected individual." New York State Attorney General Elliot Spitzer said he will bring lawsuits against national banks if needed to shield consumers in his state.

As with the proposed rule, the final rule has drawn fire from the Conference of State Bank Supervisors (CSBS) and a host of other groups, including the National Governors Association (NGA), the National Association of Attorneys General (NAAG), the National Conference of State Legislatures (NCSL), and the North America Securities Administrators Association (NASAA).

OCC's attempts to appropriate to itself through regulatory fiat broad powers not granted to it are not something new. The tactic is embedded in the history of the Comptroller's office and rooted in debates about the proper role of national banks in the United States that date to the 19th century.  In fact, top OCC officials regularly cite what they contend is justification for their various preemption opinions, sometimes invoking their own interpretations of selected court decisions and the intent of Congress that date from the mid-1800's and citing actions by President Abraham Lincoln, while conveniently neglecting more contemporary history.

In 1999, Congress passed the Gramm-Leach-Bliley Act (GLBA). In it, lawmakers created the integrated financial services industry comprised of three separate and distinct sectors: banking, securities and insurance. It affirmed the principle that insurance activities are functionally regulated by the states, while mandating greater regulatory uniformity among the states.

"These separate segmentations in GLBA are reflected in the OCC's latest rules,"  Borowski said, "Banks are banks when they engage in banking. Banks stop being banks and become insurance or securities competitors when they engage in these other activities, and as such are regulated by each sectors' respective regulators. We'd all be better off to understand this, and the OCC was humble enough to accept that important, albeit more limited role for itself."

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses.