NCPA - National Center for Policy Analysis

States Regulate Consumer Practices at Federally Chartered Banks

March 8, 2004

The Office of the Comptroller of the Currency (OCC), a branch of the Treasury Department that regulates banks, ruled this winter that 14 state predatory-lending laws -- and a host of other consumer-protection laws across the country -- 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 United States, account for 55 percent 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, says USA Today.

Examples of the impact on consumers:

  • When state authorities in New York contacted a federally chartered bank about a resident who had paid off his mortgage but was being threatened with foreclosure, the bank refused to talk to them.
  • When an elderly homeowner in Durham, N.C., was talked into a home equity loan and four refinancings, all at exorbitant interest rates, the state passed a law against such practices. Now state officials say they can't enforce the statute.

By broadening its authority over banks, the federal government leaves millions of customers vulnerable to the kinds of abuses found in North Carolina, says USA Today. That's because federal consumer laws are weaker than those in many states, and Washington is unable to enforce strict compliance.

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, says USA Today.

Source: Editorial, "Federal banking rules erode strong consumer safeguards," USA Today, March 8, 2004.

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