SPECIAL INTEREST-ON PREEMPTION AND VISITORIAL POWERS

Contact: Robert M. Garsson

January 7, 2004

(202) 874-5770

OCC Issues Final Rules on National Bank Preemption and Visitorial Powers; Includes Strong Standard to Keep Predatory Lending Out of National Banks

WASHINGTON-The Office of the Comptroller of the Currency issued two final rules today that reflect the federal character of the national banking system. The regulations enhance the ability of national banks to plan their activities with predictability and to operate efficiently, subject to effective and efficient supervision.

The first rule codifies a series of court decisions and OCC interpretations, establishes symmetry with federal thrifts regarding the types of state laws that apply to national banks, and includes a strong anti-predatory lending standard. The second rule clarifies the scope of the OCC's visitorial authority under federal law.

The new rules respond to numerous questions the OCC has received in recent years about the extent to which state laws apply to national banks and the authority of state or other agencies to examine or take actions against national banks. National banks are already subject to a comprehensive set of federal requirements, and the overlay of multiple state law standards would impose unnecessary and excessively costly burdens.

"When national banks are unable to operate under uniform, consistent and predictable standards, their business suffers and so does the safety and soundness of the national banking system," said Comptroller of the Currency John D. Hawke, Jr. "The application of multiple and often unpredictable state laws interferes with their ability to plan and manage their business, as well as their ability to serve the people, the communities and the economy of the United States."

Mr. Hawke noted that national banks operate in an environment characterized by rapidly-evolving technology, a highly mobile customer base and credit markets that are national, if not international in scope. In that environment, the proliferation of state and local laws leads to higher costs that banks must either absorb themselves, pass on to their customers, or avoid by dropping products and reducing the availability of credit.

While states are free to pass laws governing the operation of the institutions they supervise and regulate, customers of national banks will continue to benefit from an array of consumer protections available through federal law, OCC regulations and the rigorous supervision of national banks and their subsidiaries by the OCC, the Comptroller added.

In the area of predatory lending, national bank customers would be protected by the comprehensive standard included in today's rulemaking. The standard, which applies to all consumer lending activities, codifies the OCC's pioneering approach to combating unfair and deceptive practices and bars loans that rely upon the foreclosure value of the collateral for repayment, a restriction that will prevent lenders from extending credit with an eye toward seizing a borrower's home.

"We have seen only isolated cases of abusive practices among national banks," Mr. Hawke added. "But when we have identified problems, we have taken quick and effective action. Our enforcement actions have resulted in the payment of hundreds of millions of dollars in restitution to national bank customers."

The Comptroller said that the OCC's anti-predatory lending standard is a preventive measure that is aimed at keeping abuses out of the national banking system.

"Predatory lending is a very significant problem in many American communities, but there is scant evidence that regulated banks are engaged in abusive or predatory practices," he said. "Our regulation will ensure that predatory lending does not gain a foothold in the national banking system."