Protecting industry from consumers
Federal banking rules erode strong consumer safeguards
Mon Mar 8, 6:09 AM ET
In the late 1990s, North Carolina saw an upsurge in cases where banks tricked elderly homeowners into refinancing with high interest-rate loans carrying hidden fees. In response, the state enacted a law against such "predatory-lending" tactics.
Now the law is being undermined by an obscure federal agency. The Office of the Comptroller of the Currency (OCC), a branch of the Treasury Department (news - web sites) that regulates banks, ruled this winter that 14 state predatory-lending laws - and a host of other consumer-protection laws across the USA - do not apply to banks chartered by the federal government. Instead, the OCC says it will take over the job of protecting consumers who use some 2,100 banks regulated by Washington. These national institutions, including the largest banks in the USA, account for 55% of bank assets.
The new rules are meant to provide uniform oversight of an industry that has been transformed in recent decades from predominantly local operations to huge institutions with branches from coast to coast. But the change threatens strong consumer-protection laws that have been the responsibility of states for more than a century.
By broadening its authority over banks, the federal government leaves millions of customers vulnerable to the kinds of abuses found in North Carolina. That's because federal consumer laws are weaker than those in many states, and Washington is unable to enforce strict compliance.
The new federal regulations put consumers at risk because of:
Fewer legal rights. Under the OCC's rules, federal banks would be exempted from state false advertising statutes, do-not-call registries, predatory-lending laws and other consumer protections.
Fewer enforcement resources. The OCC's primary mission is to ensure a healthy banking industry. As a result, it cannot match the thousands of investigators working in state agencies to look out for consumer interests. The federal agency has 1,700 examiners who spend most of their time ensuring banks meet solvency and accounting requirements, and a 40-person consumer complaint center in Houston that is open just 28 hours a week.
States already are seeing the negative impact of Washington's new reach. New York Attorney General Eliot Spitzer says banks routinely refuse to cooperate with state consumer-abuse investigations, citing OCC policies. Faced with complaints from states, the federal agency told banks this month not to brush off state authorities.
Treasury Secretary John Snow says federal regulation is needed to spare national banks from dealing with 50 different sets of rules. But state consumer laws don't interfere with federal banking regulations. And many of the state provisions apply to other financial industries with national operations, such as insurance and securities.
The federal government's anti-consumer actions are prompting needed resistance. Spitzer is challenging the OCC's authority in a lawsuit against a federally chartered bank in New York. And members of Congress are threatening to curb the Comptroller's powers if it doesn't alter course on its own.
Regulators in Washington may have the expertise to ensure that banks follow proper accounting procedures. But protecting the interests of bank customers is a job best left to the states. .
