[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
CONGRESSIONAL REVIEW
OF OCC PREEMPTION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JANUARY 28, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-65
93-717 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio ARTUR DAVIS, Alabama
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida BRAD MILLER, North Carolina
JEB HENSARLING, Texas DAVID SCOTT, Georgia
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
MARK GREEN, Wisconsin DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona JOSEPH CROWLEY, New York
VITO FOSSELLA, New York CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas JIM MATHESON, Utah
SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts
TIM MURPHY, Pennsylvania ARTUR DAVIS, Alabama
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
C O N T E N T S
----------
Page
Hearing held on:
January 28, 2004............................................. 1
Appendix:
January 28, 2004............................................. 51
WITNESSES
Wednesday, January 28, 2004
Belew, Joe, President, Consumer Bankers Association.............. 42
Hammond, W. Lee, Board Member, AARP.............................. 43
Miller, Hon. Thomas J., Attorney General, State of Iowa, on
behalf of the National Association of Attorneys General........ 15
Shelton, Hilary O., Director, Washington Bureau of the National
Association for the Advancement of Colored People.............. 45
Taylor, Diana L., New York Superintendent of Banks, on behalf of
the Conference of State Bank Supervisors....................... 17
Taylor, John, President and CEO, National Community Reinvestment
Coalition...................................................... 37
Thomas, Karen M., Director of Regulatory Affairs, Independent
Community Bankers of America................................... 40
Williams, Hon. Julie L., First Senior Deputy Comptroller and
Chief Counsel, Office of the Comptroller of the Currency....... 13
Yingling, Edward L., Executive Vice President, American Bankers
Association.................................................... 36
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 52
Oxley, Hon. Michael G........................................ 54
LaTourette, Hon. Steven C.................................... 56
Belew, Joe................................................... 58
Hammond, W. Lee.............................................. 73
Miller, Hon. Thomas J........................................ 86
Shelton, Hilary O. (with attachments)........................ 136
Taylor, Diana L.............................................. 145
Taylor, John................................................. 167
Thomas, Karen M.............................................. 181
Williams, Hon. Julie L....................................... 195
Yingling, Edward L........................................... 214
Additional Material Submitted for the Record
Gutierrez, Hon. Luis V.:
Transcript of voice mail message received by Assistant
Attorney General Mark Fleischer, January 7, 2003........... 232
Kelly, Hon. Sue and Guiterrez, Hon. Luis V.:
Letter to GAO, April 1, 2004................................. 233
Letter to OCC, February 27, 2004, with their response........ 235
Kelly, Hon. Sue W.:
Letters from various Members to Hon. John D. Hawke, Jr....... 274
Taylor, John:
NCRC Report, ``The Broken Credit System''.................... 290
NCRC statement to OCC, September 25, 2003.................... 347
Financial Services Roundtable, prepared statement................ 354
National Association of Attorneys General letter of OCC, October
6, 2003........................................................ 367
National Association of Realtors, prepared statement............. 386
Wisconsin, Department of Financial Institutions, prepared
statement...................................................... 401
CONGRESSIONAL REVIEW
OF OCC PREEMPTION
----------
Wednesday, January 28, 2004
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:10 a.m., in
Room 2128, Rayburn House Office Building, Hon. Sue Kelly
[chairwoman of the subcommittee] presiding.
Present: Representatives Kelly, Garrett, Murphy, Oxley (ex
officio), Barrett, Gutierrez, Inslee, Moore, Crowley, Maloney,
Davis, and Frank. Also present was Mr. Ney
Chairwoman Kelly. [Presiding.] The Subcommittee on
Oversight and Investigations will come to order.
Today the Subcommittee on Oversight and Investigations will
conduct a review of two regulations that were finalized earlier
this month by the Office of the Comptroller of the Currency.
The regulations preempt State laws that currently apply to
national banks and they restrict the authority of States and
other agencies to examine or take actions against these
entities. When they take effect on February 12, these
regulations will effectively prevent a State from determining
and enforcing its own banking laws.
Preemption of any State law is an extremely serious issue,
with significant consequences for all Americans. The preemption
of state banking regulation is even more serious because it has
critical implications for consumer protections and the overall
dual banking system which has served our country very well for
decades. A decision of this magnitude requires considerable
review by Congress to ensure that consumer protections are not
being undermined and that the balance of the dual banking
system is not disrupted. The OCC is tasked with interpreting
congressional intent. In terms of these regulations, the intent
of Congress is unclear.
The correspondence of several dozen Members of Congress
from both sides of the aisle, however, demonstrates that
Congress has many unanswered questions and concerns that need
to be thoroughly reviewed before these changes are implemented.
As the Chairwoman of the Financial Services Committee on
Oversight and Investigations, I wrote to the OCC on December 1,
2003 asking the agency to delay the rules being finalized until
Congress can hold hearings to review the agency's proposal and
signal our intent. The OCC went ahead and finalized the rules
without the necessary review. This was an action that I believe
demonstrates a lack of respect for Congress and for this
committee.
I am concerned that an agency tasked with interpreting the
laws passed by Congress has strayed from its obligation to
protect consumers. The OCC is supposed to be an independent
agency. Its actions have led many of us to question whether or
not they are also independent of the people's best interests.
Unfortunately, this is not the first time that Congress has had
difficulty working with the OCC, which indicates to me that
there may be a larger systemic problem at that agency. Congress
must and will take all necessary steps to ensure that the
interests of the American people come first, even if it means a
culture of change at the OCC.
The American people expect and deserve real leadership and
accountability when an action which could potentially
jeopardize crucial consumer protections goes forward. We are
going to see to it that consumers get these assurances. It may
have been the agency's decision to move forward without
congressional review, but this committee's ability to protect
consumers and to provide oversight will not be inhibited.
We will begin the investigation today, and it will continue
until all questions are answered, and the committee determines
an appropriate course of action. I have personally spoken with
Comptroller Hawke and he has promised to testify before the
committee when he returns from his medical leave. I have also
asked Mr. Hawke to take the necessary steps to delay the
implementation of these regulations until we complete our
review. The Comptroller of the Currency is a Presidential
appointed and Senate confirmed position, and these regulations
should not be implemented without a direct explanation from the
Comptroller himself.
This request presents the OCC with a tremendous opportunity
to display to Congress and the consumers that this is an agency
that takes the review seriously and is willing to address
concerns with the regulations. In terms of the substance of
these new regulations, my colleagues and I hope many questions
can be answered today. I recognize that we live in a different
world today, with an advanced financial services sector in
which companies utilize technology and other resources to offer
better and less costly products and services.
In principle, I also understand that there is need for more
uniformity in regulation, and that we need to investigate
whether a patchwork of laws may impede progress that is
beneficial to consumers. In fact, this committee has held
several hearings on reforms in insurance and securities
regulation, with the intent that changes could be made by
Congress through a legislative process. However, for a
regulator to single-handedly preempt a State's ability to both
determine and enforce laws without public debate or explicit
direction from Congress is not only troublesome, but I believe
it is careless. The American people deserve better. The
American people deserve a voice in these decisions.
I am certain that many Members have questions today
specifically on the issue of predatory lending. While this is
one of the significant laws preempted, I caution that we not
focus solely on this issue. Given the overreaching nature of
these regulations, which appears to be much larger than just
this one issue, I hope my colleagues in the Subcommittee on
Housing and Financial Institutions will continue their own
investigations into predatory lending to address these specific
concerns.
I want to remind Members this hearing is to collect facts
to see if Congress needs to further clarify its intent to the
OCC. As usual, the committee's 5-minute rule will be observed,
and I ask staff to remind their Members of that if the Members
are not here at this time. I would like to thank the witnesses
for their attendance here today, and I look forward to working
with you on these important issues.
The Chair notes the presence of Members of the full
committee and welcomes all of you. I ask unanimous consent that
all Members present today will have their statements, questions
and the answers to those questions included in the record.
Without objection, so ordered.
One of our first opening statements will come from my
Ranking Member, Mr. Gutierrez.
[The prepared statement of Hon. Sue W. Kelly can be found
on page 52 in the appendix.]
Mr. Gutierrez. Thank you very much, Madam Chair, for
holding this timely hearing. These rules were issued on January
7 before we returned from recess. I commend you for arranging
this meeting as quickly as you have.
I share a number of your procedural and substantive
concerns about the OCC's proposed rules. As most of us are
aware, Federal preemption occurs in one of three ways: Congress
expressly preempts State law; Congress establishes a framework
of regulation that occupies the field and leaves no room for
much state action or any state action; or State law conflicts
with Federal law. For as long as I have served here, and for
sometime before that, it has been clearly the intent of
Congress that State laws should apply to national banks in a
number of areas, including consumer protection and fair
lending, unless Congress expressly preempts those State laws.
Congress never intended the OCC to preempt the field of
lending. In response to the OCC's overreaching in the past, the
Riegle-Neal interstate banking law sought to clarify the limits
of the OCC's authority and establish certain notice and comment
procedures to be observed on the rare occasion when State laws
impede the ability of national banks to conduct the business
assigned to them by Congress. The OCC's standard of ``obstruct,
impair or condition,'' articulated in this rule is a major
departure from congressional intent and established precedent,
inconsistent with some of the OCC's previously articulated
preemption positions and at the very least of fair-weather
Federalism.
State legislatures have long functioned as incubators of
innovation because they have been able to act quickly and
creatively to respond to changes locally in the marketplace.
Frequently, their excellent product proves its merit beyond its
borders and becomes the basis for a change in Federal law. I am
deeply troubled that the OCC's action could stifle this
innovation. In other instances, State law improves upon Federal
laws. In fact, a number of laws written by this committee
indicate that State laws are not inconsistent with Federal laws
if they provide greater protection to consumers. If the
consumer does better at a State level, this committee and this
Congress on many occasions, as many of us have articulated in
many times past, that those are the laws.
I am particularly concerned about the area of predatory
lending and its disproportionate effect on minorities. As you
are likely aware, two recent studies showed that African
Americans were four times more likely to receive a subprime
loan, and Latinos 2.2 times more likely than their white
counterparts. That disparity between whites and minority
actually grows at upper-income levels. There is currently only
minimal Federal protection in terms of predatory lending,
minimal, at the Federal level, but the primary protectors of
the consumer, the States, have enacted a number of laws in the
area to regulate and curtail many predatory practices. These
State laws should not be preempted unless and until Congress
enacts a comprehensive Federal law that provides greater
protection to consumers.
The OCC's mission and primary enforcement goal is to ensure
the safety and the soundness of financial institutions under
its purview, which can directly conflict with the goal of
consumer protection because unconscionably high points and fees
and inadequate and deceptive disclosures and unfair practices
can be extremely profitable to banks. Furthermore, the OCC's
wholesale preemption of state consumer protection statutes will
deprive consumers of the private rights of action currently
available to them.
I want to thank you again, Madam Chair, for calling this
hearing because I think it is going to be very, very critical
to how we proceed with protections for our consumers across
this country. Thank you so much.
Chairwoman Kelly. Thank you very much, Mr. Gutierrez.
We go now to the chairman of the full committee, Mr. Oxley.
Mr. Oxley. I want to thank you, Madam Chairwoman, for
holding the first congressional oversight hearing on the OCC's
recently issued regulations setting forth standards for
determining when State laws can be applied to the operations of
national banks, an ongoing issue, all of us I think would
agree. Our dual system of national and state bank chartering is
a unique feature of the U.S. financial marketplace and has
served the American economy and American consumers well for
almost 200 years. Since the inception of the dual banking
system, tension has periodically flared between Federal and
State authorities over the proper allocation of responsibility
for overseeing the activities of national banks.
The regulations issued in final form by the Comptroller
earlier this month, after a period for notice and comment, are
the latest chapter in that long-running debate. While most of
the attention in the media and elsewhere is focused on OCC's
preemption of predatory lending laws that an increasing number
of States and municipalities have enacted in recent years, the
regulations are in fact much broader in scope and raise issues
that go to the heart of the dual banking system, including the
following:
Should institutions that are chartered by the Federal
government and operate on a nationwide basis be required to
comply with laws passed by state or local governments that
address core bank functions such as lending and deposit-taking?
Should the authority to enforce Federal and State laws
against national banks reside exclusively with the OCC, except
as otherwise provided by Federal law, or do state attorneys
general and other state agencies have a role to play?
Does the application of uniform Federal standards to
lending and deposit-taking and the centralization of authority
for enforcing those standards promote the safety and soundness
of national banks and yield benefits for their customers?
In my view, the OCC regulations represent a thoughtful
attempt to codify and harmonize past legal precedents--and
there are many--and regulatory guidance into a coherent
framework for resolving conflicts between Federal and State
laws as they apply to national banks. The regulations largely
conform the preemption standards applicable to national banks
to those that have long been applied to Federally chartered
thrifts by the Office of Thrift Supervision and to Federal
credit unions by the National Credit Union Administration.
With respect to the charge that the OCC's regulations leave
customers of national banks exposed to abusive lending
practices, it should be noted that there is a decided lack of
evidence that national banks have engaged in such practices,
which tend to be centered instead in non-Federally regulated
mortgage and finance companies that remain fully subject to
state and local anti-predatory lending laws. Moreover, for
those national banks that do engage in abusive or unscrupulous
tactics, the OCC's regulations contain new standards
prohibiting institutions from making loans based predominantly
on the foreclosure value of the collateral and without regard
to the borrower's ability to repay, and from engaging in unfair
and deceptive trade practices as defined by the FTC.
We will hear from opponents of the OCC's regulations at
today's hearing who question the agency's commitment to
enforcing its new anti-predatory lending standards and argue
that consumers are better served by a regime in which national
banks must answer to both Federal and State authorities.
In closing, let me again commend Chairwoman Kelly for
tackling this difficult issue and for rigorously asserting this
committee's oversight prerogatives to ensure that the Federal
agencies within our jurisdiction act in the public interest.
Let me also welcome all of our witnesses to today's hearing,
particularly OCC Chief Counsel Julie Williams, who has been
here before, to pinch-hit for Comptroller Jerry Hawke as he
prepares to undergo surgery later this week in New York. We
wish him a speedy recovery and look forward to continuing this
committee's dialogue with him on this and other issues of
concern upon his return to duty in March.
I yield back the balance of my time.
[The prepared statement of Hon. Michael G. Oxley can be
found on page 54 in the appendix.]
Chairwoman Kelly. Thank you, Mr. Chairman.
We go now to our Ranking Member, Mr. Frank.
Mr. Frank. Madam Chair, your initiative in calling this
hearing is something that we all very much appreciate. This is
an extremely important issue, so important that I must say that
there is both a procedural and a substantive argument here. The
procedural one is that this is a very far-reaching change in
the way in which the banking system has been run, and the
Comptroller acknowledges this. I do not think it is appropriate
for this to be done entirely by an executive fiat, particularly
an executive for whom I have a great deal of respect, Mr.
Hawke, and his operation, but who even as an executive is
somewhat insulated from the process. The Comptroller is a
somewhat protected individual.
I say that because I do not think we should be arguing
primarily legally here. This will go to court. But just because
something is legal does not make it right. There are a lot of
legal things to do that are kind of stupid. I would not say
this one was stupid, but I think it is counter-productive. What
we have here is a fundamental policy question about how banking
authority ought to be divided and I think we in Congress ought
to deal with it.
Now, I want to also note that many of us on our side, and I
believe some on the other side as well, are very much opposed
to this, not because of any hostility to the notion of national
banking. Overwhelmingly, the Members of the committee on this
side of the aisle supported within a month or two legislation
that extended preemption in the field of credit. We are not
reflexively against preemption. What we felt then was that
there was a national issue there in terms of credit reporting.
People do not apply for credit from their neighborhood. Credit
is given nationally.
Real estate lending, on the other hand, is a more local
operation. What I believe we should be doing is a policy area
by policy area decision about preemption. I think there was a
strong argument for preemption with regard to the reporting of
credit. I do not believe it is with regard to real estate
lending. One of the arguments we give as well, if Georgia or
this state or that state passes a law, then the rating agencies
will be mad at them and they will not be able to participate in
the secondary market. Why can't they make that choice under our
constitutional system? It does not hurt me in Massachusetts. If
Georgia chooses to draw the line on this side rather than that
side, why is that inherently violative?
I do agree with regard to credit. Some national laws had to
be there. But with regard to real estate, I am always told by
people in the business, location, location, location. That is
local. It seems to me there is a strong argument there. The
premise ought to be that we leave to the States what they can
do, unless there is good reason to the contrary.
Beyond that, I am particularly disturbed, and I would hope
Ms. Williams will be able to address this. I may not be able to
stay because I have a meeting of the homeland security
committee, and that is a problem when we only meet a couple of
days a week. You have to be in about nine places at once. The
part of it that particularly bothers me is the assumption of
enforcement powers even where it is conceded that the State has
the right to make laws. Let me say in particular, I note, and I
was glad to see Ms. Williams point out that any discrimination
laws will be valid; that States can pass any discrimination
laws that could presumably be tougher than the Federal laws and
they will still be valid, but the State will have no power to
enforce those.
Now, what we have here, it seems to me, is an assertion by
the Comptroller of greatly increased enforcement powers. I hope
Ms. Williams will tell us what new enforcement resources you
are bringing to bear on this. You are knocking out of the box
50 States which have their own enforcement mechanisms, and you
would take on the enforcement. We are not talking now about
some of the argument about whether or not the State laws apply.
But in those areas where you concede that State laws apply,
including discrimination, which is something, frankly, which
seems to me under-enforced in this country, discrimination in
lending, you are now saying to the States, you can pass the
law, but we will enforce it.
Frankly, I do not think we at the Federal level have the
capacity to do that. I see no sign that anybody has taken that
into account. I think what we are going to see as a result of
this is a diminution of enforcement even in those areas where
it is conceded that the States have power.
So I look forward to our continuing to deal with this, and
I thank the Chair.
Chairwoman Kelly. Thank you very much, Mr. Frank.
Mr. Garrett?
Mr. Garrett. Thank you, Madam Chair.
Just very briefly, first of all let me thank you for
holding this hearing. It rises to the level of importance on
the two areas, and I join with my colleagues on the other side
of the aisle inasmuch not only is it a question that I am
interested in on the merit side of the equation, but the
fundamental procedural aspect as to exactly how we get to this
where the fundamental States rights issues are addressed
through an agency's approach as opposed to a directive coming
directly from Congress.
At the outset, I am a little bit troubled by the
Chairlady's opening comments with regard to the lack of
responsiveness to the inquiries that you have made of the OCC.
I would have hoped that you would have received a better
response than you did. Secondly, I will be interested to learn
as we go forward with the testimony with regard to the extent
of what we going to hear as far as the authority that the OCC
is now establishing. I have been told by folks who are here a
lot longer than I, so that is why I will look to you for the
information, that the OCC has a history of trying to over-
extend its authority in certain areas, and specifically
reaching out in the area of insurance regulation. So one of the
questions or interesting areas I would like to know and hear
about is whether the OCC will be trying to extend through the
regulations, or have any impact whatsoever with regard to the
State regulation thereafter of national banks with regard to
their insurance activities.
Additionally, and maybe this goes back to the first issue
of the lack of responsiveness that you cited, was what is it
that prompted this activity now. We know all about the activity
in Georgia, of course. I come from the great State of New
Jersey and we know what is going on there. I am told that the
OCC in the past has had more of an incremental approach to
dealing with these types of problems. Here, however, if I am
understanding you all correctly, it is a much broader and
blanket approach. I could understand that if I was reading in
the paper what was happening in Georgia and New Jersey, what is
happening everyplace overnight in that there was immediacy to
the problem, but I just do not see it, and why you are changing
from an incremental approach of dealing on a case-by-case
basis.
Finally, I am just curious also to look into the aspect of
the impact it has on the State regulation of the State things
vis-a-vis the national bank, and is this an effort by the OCC
in a way simply to say that we are going to try to lure even
more so the States over to the national charters so that at the
end of the day when I go back to my state legislators, their
responsibility in the entire field of banking and insurance and
consumer protections has been relegated to absolutely nothing
because it has always been lured out and taken away from them.
Thank you, Madam Chair.
Chairwoman Kelly. Thank you very much, Mr. Garrett.
Ms. Maloney?
Mrs. Maloney. First of all, thank you, Madam Chair. I would
like to take the liberty of welcoming one of my constituents
from the great State of New York and New York City,
Superintendent Taylor; and also welcome Attorney General Miller
and Comptroller Williams.
Just very briefly, I believe the preemption of state
banking supervisors, attorneys general, legislatures, chief
executives and voters is a very dangerous blow to both the dual
banking system and our country's Federalist tradition. For 150
years, this country has been well served by the dual banking
system. Today where technology allows a single national bank to
serve our constituents from coast to coast, it is even more
important to retain a role for localities to have some input
into the large institutions that dominate financial services.
The OCC argues that its actions are merely an incremental
step forward, codifying judicial decisions that were decided on
existing statutes. While I have great respect for the
Comptroller and I wish him very well in his treatment and his
recovery, and I have great respect for his staff, I think they
are understating the magnitude of their actions.
My fear for the future of the dual banking system is based
on two points. First, States play an incredibly important role
in the regulatory framework. Across the country, hundreds of
state employees work on consumer protection issues. They live
in our home States and have much closer ties to the community
than is possible for a national regulator no matter how
capable. State regulators and attorneys general have proven
records of service in protecting consumers.
Secondly, in the eyes of the industry, the national bank
charter is greatly enhanced by the OCC's actions. I certainly
support the national charter, but I am concerned about the
ramifications of such a major change without congressional
hearings and approval. It is my understanding that more than a
dozen of large national bank operating subsidiaries are
planning to leave the State system once the regulations go into
effect on February 12. This trend alone could be the beginning
of a stampede and it demonstrates the magnitude of the OCC's
regulatory ruling.
While I oppose the decision to preempt the States, I want
to add that the OCC does a very good job regulating the
national banks for which it is responsible. I have always
enjoyed working with the agency and I appreciate the fact that
national banks are not the practitioners of widespread
predatory lending. On this committee, we are often asked to
balance the efficiency required for national markets to operate
seamlessly, versus the rights of States and cities to enact and
enforce local laws. Last year, I worked closely with the
Ranking Member of this committee and in a bipartisan manner to
pass FCRA reauthorization preempting State laws governing
credit reporting. I was convinced that on credit that we needed
a uniform national standard. Here, I believe the national
regulator has gone too far.
Thank you.
Chairwoman Kelly. Thank you very much, Ms. Maloney.
Mr. Murphy, do you have an opening statement?
Mr. Murphy. No.
Chairwoman Kelly. Mr. Crowley?
Mr. Crowley. Thank you, Madam Chair.
I want to thank my New York colleague, Chairwoman Sue
Kelly, and Ranking Member Luis Gutierrez for conducting this
important hearing today on OCC and their recent regulations. I
would also like to thank one of our witnesses as well, who is
not a constituent of mine, but certainly a well-known
individual in our city and our State, Diana Taylor, who is the
New York State Supervisor of Banking. She is a pro, and someone
I have been pleased to get to know more closely over the last
few years. Welcome to all our panelists today.
The issue of today's hearing is bigger than that of
national versus state-chartered banks, in my opinion, or the
presumed powers of the OCC. The real question here deals with
ensuring the greatest protections of all American banking
consumers with respect to stopping abusive lending practices.
While I welcome the approach undertaken by the OCC of creating
one uniform Federal standard for all national banks and their
operating subsidiaries with respect to predatory lending as a
way of creating a level playing field for all national banking
customers and consumers, I also do believe the regulations they
are putting in place on this front are weak at best.
Our constituents have no idea where their bank is chartered
and, quite frankly, they really do not care. But they do care
about protecting their money and their investments and keeping
access to capital free and flowing. The establishment of this
national, albeit weak standard by OCC drives home the need for
real action by Congress this year to address predatory lending
with a strong national law that governs lending at all
financial institutions and their operating subsidiaries
regardless of where they are chartered. These are issues we
need to address in this Congress.
Hopefully, this action by OCC will lead my colleagues to
work together in a bipartisan way to create a new uniform
Federal standard in lending practices that crushes predatory
lending, but allows subprime to continue to thrive and put
money into the hands of people that need it and to communities
that I quite frankly represent as well, minority communities
that my good friend from Chicago so ably has been defending.
I look forward to today's hearing and hope for a good back
and forth volley on questions and answers, not only to the
issue of OCC regulations, but more importantly on the larger
issue of the need for congressional action to address lending
abuses this year, to protect all banking consumers regardless
of where their bank is chartered. Additionally, at this
hearing, because it is so important, it is my hope that if time
permits we will be able to ask additional questions.
I once again want to thank the Chair and the Ranking Member
for calling this hearing.
Chairwoman Kelly. Thank you very much, Mr. Crowley.
Mr. Barrett has indicated he does not have an opening
statement, so I am going directly to Mr. Ney.
Mr. Ney. Thank you, Madam Chairwoman. I appreciate you and
Ranking Member Gutierrez for holding this very important
hearing.
There can be no doubt about the importance of both the
housing markets to our nation's economy and the importance of
the dual banking system to our nation's financial markets. I
want to applaud the hard work of the Comptroller of the
Currency in putting together what I think is both a fair and
necessary rule for how state and local abuse of lending laws
affect national banks. I think that this rule highlights the
evolving nature of our nation's housing finance market.
Twenty years ago when I was in the State legislature, I
would have never said that I support a national standard for
mortgage lending, but the world has changed since I was in a
State legislature, and since this issue is being addressed
here. Now we have an intensely competitive marketplace with
lenders, frankly, from all over the nation competing to make
loans to consumers. Consumers can go on the Internet and apply
for loans, or they can call a 1-800 number to apply for credit.
When they are doing this, they do not worry about where that
lender is located; just that they are getting the best rate and
terms possible. This environment has ensured that there is a
strong supply of credit at very affordable prices.
Furthermore, many of today's loans are securitized and sold
in the secondary market all over the world. Over 30 percent of
mortgage-backed securities are now held by foreign investors.
Unfortunately, a growing patchwork of state and local laws are
threatening the viability of this national marketplace. I do
not have time today, but I can give you countless examples,
including in our own State of Ohio. A lot of times, those have
not benefited, frankly, are the consumers. They threaten to
restrict the availability of credit and raise the cost of
borrowing for consumers across the nation.
In the past few years, we have seen how important the
housing market has been to our nation's economy. The strength
of the housing market made the past recession one of the least
severe in our nation's history. The growing patchwork of state
and local laws could severely damage our nation's economy and
weaken the recovery that we have been experiencing. Comptroller
Hawke recognized this and took decisive action to make it clear
that Congress created the national bank charter with the
intention of creating a national bank charter to provide a
uniform banking system of regulation for national banks.
The OCC rule published earlier this year makes it clear
that our credit markets need a uniform system of regulation. It
also makes it clear that we cannot tolerate bad actors in the
mortgage business, and we shouldn't. The OCC also has
acknowledged that some lenders engage in abusive credit
practices and that those practices should be outlawed. While
national banks have rarely been found to be engaged in abusive
practices, the regulation still includes an important new anti-
predatory lending standard. This standard prevents any national
bank from making a loan based upon the foreclosure value of the
collateral associated with that loan. This means, of course,
that a national bank must thoroughly assess a borrower's
ability to repay the loan before making it. It also means that
national banks cannot unfairly place a borrower's home under
the threat of foreclosure. This is good.
While this regulation is a good first step, it only applies
to national banks and leaves many institutions untouched, which
comes to my punchline, if you want to call it that. I have a
predatory lending bill. We need to protect consumers. I am
working bipartisanly with Members of the Financial Services
Committee also to look at counseling and many, many other
important issues. I think it is time for a national standard. I
think this rule in no way conflicts with what we are trying to
do. In fact, I think a follow-up with a predatory lending bill
that is aimed at protecting consumers and still having subprime
loans available is going to close that loophole because this
will apply only, of course, to certain banks.
With that, I want to thank you, Madam Chair.
Chairwoman Kelly. Thank you, Mr. Ney.
Mr. Moore?
Mr. Moore. Thank you, Madam Chair and Ranking Member
Gutierrez. Thank you for holding this oversight hearing on the
OCC's state banking oversight preemption regulations.
Our nation's dual banking system has served the country
well for over 140 years, but there is an inherent tension in
the dual banking system and it is appropriate that this
subcommittee examine the impact of these regulations on both
the banking industry, and more importantly, the consumers of
the banking products and services.
It appears that some of the issues raised in our debate
over the Fair Credit Reporting Act may be relevant here. At the
end of last year, this Congress permanently extended the
Federal preemption provisions in the Fair Credit Reporting Act
after concluding, on a bipartisan basis, that uniform national
standards were essential for our national credit system. In
that case, we realized that uniform national standards helped
consumers because they expanded the availability of credit and
improved the efficiency of our financial services system.
In this case, I suspect that similar arguments will be made
in support of the regulations issued by the OCC. Like FCRA, it
will be suggested that the OCC's actions permit national banks
to offer products and services to consumers on a consistent
basis, regardless of where the consumer resides. I expect the
OCC and the industry to suggest that these rules will allow
banks to operate more efficiently and effectively, and these
efficiencies can be passed along to the consumer in the form of
better products and services at lower prices.
On the other hand, I know that some consumer groups are
concerned about the impact of the regulations on consumers and
the State banking regulators, including the Kansas Banking
Commissioner, are concerned about the impact of the regulations
on their agencies's ability to service the public interest. I
practiced law for 28 years before I came to Congress and I
learned that there are at least two sides to every story most
of the time, sometimes many more. Often, the truth, and
sometimes even the best policy, is not found at either extreme
but somewhere in the middle. For this reason, I look forward to
the testimony of the witnesses at this timely hearing. I hope
that they will be able to speak to the similarities or
differences between what we did with FCRA and what the proposal
is by the OCC in these regulations.
Thank you.
Chairwoman Kelly. Thank you very much, Mr. Moore.
Mr. Davis?
Mr. Davis. Thank you, Madam Chairwoman. Let me thank you
and the Ranking Member for convening this hearing. Given the
time, I will try to be as brief as I can and just make a few
observations at the outset.
One of the things that really lingers in my mind from my
first year in Congress, the first part of the 108th, was an
observation that someone made from one of those chairs about 3
months ago. It involves the fact that the frequency of subprime
lending is frankly twice as high in the affluent African
American community as it is in the non-affluent Caucasian
community. We tried to talk about why that exists. I am not
sure that we ever got a good solid answer that day, but it
strikes me that that ought to be somewhere near the backdrop of
this whole analysis.
I agree with my very able colleague from Kansas that there
are some superficial parallels with the debate over FCRA and I
am certainly sensitive to the idea of a nationalized standard
because of the predictability benefits, or the gains in
predictability. At the same time, I have yet, in all the many
times I have come to this room, to hear a really good
explanation of why predatory lending has taken on, frankly, a
racially discriminatory character. On its face, there is no
reason to think that it would, but for whatever reason, again,
the subprime rate is twice as high in the affluent black
community.
I am very interested in hearing your perspective today on
another question, which is exactly how the patchwork is going
to work between state and nationally chartered banks. On its
face, I can understand why the States have an interest in
enforcing laws against banks that have chosen to take out a
State charter on their own. I have some vague memory from civil
procedure of the whole purposeful availment theory, and I am
certainly interested in hearing your perspective on that.
I hope that the backdrop that we have, as Chairman Ney
said, is to try to find some way to, if we can, have a strong
standard across this country, but to make sure that we are also
addressing some very obvious mortgage practices that certainly
do not need to a strong economic foundation, and I think are
certainly reprehensible to a lot of people on this committee.
I will yield back my time, Madam Chairwoman.
Chairwoman Kelly. Thank you very much.
If there are no other opening statements, then the Chair
will continue on here with our first panel introductions. On
this first panel today, I am pleased to have with us three
excellent witnesses. First is the Honorable Julie L. Williams.
She is First Senior Deputy Comptroller and Chief Counsel
representing the Office of the Comptroller of the Currency.
Also with us is the Honorable Thomas J. Miller, Attorney
General, State of Iowa, testifying on behalf of the National
Association of Attorneys General. I discussed this issue with
Attorney General Miller at another hearing last November. It is
good to see you again today, Attorney General, and we do thank
you for coming back.
And finally, I am honored to have the opportunity to
introduce Ms. Diana L. Taylor. She is the New York
Superintendent of Banking. She will be testifying on behalf of
the Conference of State Bank Supervisors. There are many
important issues that we are going to discuss today, but none
more significant than protecting consumers, something Ms.
Taylor takes very seriously as the head of the New York banking
department.
I thank you all for your appearance today. I know that it
was not easy to travel and plan to be here, so I appreciate
your spending time with us this morning. Thank you very much.
Without objection, your written statements will be made part of
the record and you will be each recognized for 5 minutes. If
you have not testified before, the box on the table in front of
you has three lights. Red means stop. Yellow means you have 1
minute. Green, of course, means go.
So we are going to start with you. You may go first, Ms.
Williams.
STATEMENT OF HON. JULIE L. WILLIAMS, FIRST SENIOR DEPUTY
COMPTROLLER AND CHIEF COUNSEL, OFFICE OF THE COMPTROLLER OF THE
CURRENCY
Ms. Williams. Chairwoman Kelly, Ranking Member Gutierrez,
Ranking Member Frank, and Members of the subcommittee, I
appreciate the invitation to discuss the OCC's recently issued
preemption rules. I will begin by describing what our new rules
do and what they do not do. Then I will explain why we took the
actions we did and why we acted when we did. Then I will
address one of the misperceptions, one of many, unfortunately,
that surround the new rules. There have been some rather
extreme characterizations of these new rules, so let me begin
by explaining exactly what they do.
The first regulation, I will call it the preemption rule,
clarifies the extent to which national banks's lending,
deposit-taking and other Federally authorized activities are
subject to State laws. The rule provides that a State law does
not apply to a national bank if the State law obstructs,
impairs or conditions the bank's ability to exercise the power
granted to it under Federal law by Congress, unless Congress
has provided that the State law does apply. This approach
reflects fundamental constitutional supremacy clause doctrine.
The regulation carefully follows standards established by the
U.S. Supreme Court.
Our rulemaking authority is based on several sources in
Federal law. The types of State laws the rule preempts is
substantially nearer those already preempted by the Office of
Thrift Supervision in its preemption regulations for Federally
chartered savings associations.
It is also important to recognize what the OCC's preemption
regulation does not change. It does not immunize national banks
from complying with a host of State laws that form the
infrastructure of doing the business of banking; contract law,
tort law, public safety laws, generally applicable criminal
law. It does not preempt anti-discrimination laws, nor, Mr.
Frank's issue, enforcement of those laws. It does not change
the allowable rates of interest a national bank may charge on a
loan. It does not authorize any new national bank powers or
activities, and it makes no changes to our existing rules
governing the activities of operating subsidiaries.
Our second new regulation interprets a provision of the
National Bank Act that grants the OCC exclusive authority to
supervise, examine and regulate national banks. In this, what
we call our visitorial powers rule. We clarify that the scope
of the OCC's exclusive authority focuses on the content and
conduct of the banking business that is authorized to national
banks under Federal law. We also interpreted a portion of the
statute that refers to powers of courts of justice as not grant
to State officials any additional authority beyond what they
might otherwise possess to examine, supervise or regulate the
banking business of national banks. That is what we did.
The second point I want to address is why we took these
actions and why we took them now. We have recently seen an
unprecedented number and variety of state and local enactments
intended to limit and control the ability of national banks to
engage in banking activities that have been authorized for them
by Congress. These state and local enactments prevent national
banks from operating to the full extent lawful under their
Federal charters. They also undermine the vitality of the dual
banking system, which is predicated on distinctions between
state and Federal bank powers and regulations.
These laws, many with laudable goals, also have real
practical daily consequences. They have unsettled mortgage
markets, reduced the availability of legitimate subprime loans
to some consumers, increased regulatory burden, added
operational costs, created unpredictable standards of
operation, and uncertain risk exposures. My written statement
discusses these issues in more detail.
The OCC's new rules were designed to supply urgently needed
clarification of the standards applicable to national banks's
activities and to restore predictability to their operations.
Our process, and I am sensitive to the Chairwoman's comments
here, was neither sudden nor secret. Our rules are based on
existing law and we acted as the circumstances became
compelling. In developing these rules over a period of many
months, now dating back to approaching almost two years, we
solicited comments from all concerned parties. We consulted
widely with representatives of the financial industry, public
interest groups, other regulatory agencies and State officials.
From the very beginning of our consideration of these issues,
we briefed House and Senate Members and their staffs on both
sides of the aisle, and we made ourselves available to answer
any and all questions.
The Chairwoman has expressed a concern about whether we
waited for Congress to signal its intent. This was a long,
broadly inclusive, open process that resulted in these
regulations. To depart from my script here and on a personal
note, I very much regret if the Chairwoman or Members of the
committee feel that that process was inadequate. That was
certainly not our intent.
Finally, let me address one of the misperceptions that has
arisen around our rules, namely its impact on predatory
lending. We have zero tolerance for unfair, deceptive, abusive
or predatory lending. We know its tragic consequences. We
rigorously supervise national banks and their lending
subsidiaries and there is scant evidence that they are the
source of the predatory lending problem in this country. Our
track record demonstrates that we will act vigorously if
problems arise.
Two new provisions that we included in our regulation will
make it even less likely that predators will find refuge in any
national bank. The regulation first provides that national
banks may not make consumer loans based predominantly on the
foreclosure or liquidation of a borrower's collateral. This
will target the most egregious aspect of predatory lending,
where a lender extends credit not based on a reasonable
determination of a borrower's ability to repay, but on the
lender's calculation of its ability to seize the borrower's
accumulated equity in his or her home.
The regulation also recognizes that other practices are
also associated with predatory lending. Some may not realize
that the OCC does not have the authority under the Federal
Trade Commission Act to adopt rules defining particular acts or
practices as unfair or deceptive under the Act. However, we can
take enforcement actions in specific cases where we find unfair
or deceptive practices. Our new regulation therefore
specifically provides that national banks shall not engage in
unfair or deceptive practices within the meaning of section
five of the FTC Act in connection with their lending
activities.
In conclusion, Madam Chairwoman, we believe our new rules
protect as well as benefit national bank customers. We believe
they are entirely consistent with the fundamentals of the dual
banking system, and with Congress's design of the national
banking system. I thank you for this opportunity to testify. I
will be happy to answer any questions the subcommittee may
have. Thank you.
[The prepared statement of Julie L. Williams can be found
on page 195 in the appendix.]
Chairwoman Kelly. Thank you, Ms. Williams.
Mr. Miller?
STATEMENT OF THOMAS J. MILLER, ATTORNEY GENERAL, STATE OF IOWA,
ON BEHALF OF THE NATIONAL ASSOCIATION OF ATTORNEYS GENERAL
Mr. Miller. Thank you, Congresswoman Kelly and Members of
the committee, for having this hearing. This is a very
important hearing. I say so because of what is at stake. Let me
outline what I believe is at stake.
The regulations that have been adopted are breathtaking in
their effect on States, on banks, and most importantly on
consumers. Let me explain why I say that. One regulation
changes the thrust of state preemption. It makes it much more
expansive than traditionally has been interpreted by the courts
and certainly has been discussed by this committee. One view of
preemption is if there is a conflict between Federal law or
Federal regulation with the State law, the State law, of
course, has to yield. Sometimes the standard has been used
whether there is a substantial impairment of the Federal
purpose, the State law fails. But what is here is any condition
that affects the ability of a national bank to fully exercise
its authority, any condition, any condition on a national bank,
small large, good or bad, just about any regulation can be a
violation of the OCC rule and therefore be prohibited.
I talked to you a few months ago about the enormous success
of the North Carolina statute on predatory lending. It would
appear to be preempted, and just about any other form of
consumer protection. The step that has been taken here is
dramatically different than has been taken before and is
overwhelming in effect.
If that is not enough, whatever remains of State law as it
applies to national banks, state authorities cannot enforce it
as a result of one of the other regulations. This almost
boggles my mind about why you would strike a balance,
especially an extreme balance, and then go further and say the
State authorities cannot even enforce State law, whatever
remains. This is truly significant. In addition, it should be
seen in the context that if they are subsidiaries of national
banks, all of this applies. So subsidiaries that we are used to
dealing with all the time, mortgage companies, finance
companies, they enjoy the same preemption both as to the law
and as to the enforcement that the national bank does.
What are the consequences of this? I say they are very
significant. They are most significant for consumers. To take
the States out of any kind of consumer protection with national
banks I think would be a terrible mistake. The States are the
laboratories of democracy. The States are the foot soldiers.
Real estate transactions are local in nature. What about a
routine credit card complaint that we get all the time? Against
a subsidiary of a national bank, under the scheme proposed by
the OCC, all of those complaints have to go to Houston. You
have to call Houston.
What about the expertise that has been developed by States
in this area, predatory lending for instance? It is gone as to
national banks. One of the effects is this look at the standard
on predatory lending in the OCC regulations. The standard is
making a loan to ultimately foreclosure upon. Well, as a
standard that is a misunderstanding of what happens in
predatory lending. Most of predatory lending is premised on
people staying in the houses and paying and paying and paying.
They miss the boat, not because they are not smart, they are
brilliant, but because they are not experienced. They have not
dealt with this.
To take the States out of consumer protection as to
national banks just does not make any sense at all. Only 3
years ago did the OCC even discover consumer protection in
terms of use of the FCC Act. It was ignored for 25 years. They
do not have the expertise. They do not have the experience that
we have.
What about Congress? I was here 2 1/2 months ago testifying
about the preemption question in a predatory lending
environment. What the OCC has done has made that day for you
and for me and the other witnesses meaningless. They have taken
the authority away from the Congress. And the Congress, more so
than the OCC, is able to deal with these questions. You are the
experts. You have the experience in dealing with balancing
interests of consumers and lenders, balancing the Federalism
concerns of States and the Federal government, not the OCC.
This is a decision that cries out for Congress, not the
OCC, to make the decision, particularly in light of one aspect
of the environment, and that is there is enormous competition
for banking charters between the OCC and the States. If you
want a good idea of the competitive spirit, go read Comptroller
Hawke's speech on September 9 of last year to Women in Housing
and Finance. He is really engaged in competing with States for
charters. To allow him in that competition environment to make
these very important and extremely far-reaching decisions,
rather than Congress, just does not make sense and it has
enormous affect on States.
As I have said in another context, this is the kind of
preemption where most State law is preempted, and then what is
left, there is a preemption of state authority to enforce. It
is a dagger in the heart of Federalism. It ignores the
legitimate interest of States and the work that has been done
by the banking superintendents and by the attorneys general and
the rest. That is why I say this is an important hearing. This
is your decision, not the decision of a single bureaucrat.
Thank you.
[The prepared statement of Hon. Thomas J. Miller can be
found on page 86 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Miller.
Ms. Taylor?
STATEMENT OF DIANA TAYLOR, NEW YORK SUPERINTENDENT OF BANKING,
ON BEHALF OF THE CONFERENCE OF STATE BANK SUPERVISORS.
Ms. Taylor. Thank you very much, Congresswoman Kelly and
Congressman Gutierrez and Members of the subcommittee. I am
Diana Taylor, Superintendent of Banks of the State of New York.
I am here today on behalf of the Conference of State Bank
Supervisors. Thank you for inviting us to discuss our concerns
about the Comptroller of the Currency's recent preemption of
state consumer protection laws and enforcement authority.
From the start, I want to say that our system of financial
regulation is confusing. But remember, we have the strongest
financial system in the world. We have a virtual alphabet soup
of rules, regulations and regulators that oversee banks
operating in States, across state lines, internationally, and
in ways and in businesses they have never operated in before,
that were not even contemplated 10 or 20 years ago.
The situation we find ourselves in sitting here today is an
outgrowth of a changing industry, and changing technology has
allowed banks to conduct business in ways and areas they never
could before. It is confusing, but this is a good thing. It is
competition and capitalism at its best. Banking law has
changed. Glass-Steagall has been changed. We have Gramm-Leach-
Bliley and Riegle-Neal.
Chairwoman Kelly. Ms. Taylor, I am sorry to interrupt you,
and we will give you the extra time. It is difficult for some
people to hear you. Is it possible for you to pull those
microphones a little more closely and perhaps raise your voice
a bit?
Ms. Taylor. I apologize. I have never done this before, and
I am also finding that 5 minutes is a very short period.
Chairwoman Kelly. Pick up where you were. I know it is
tough, but we will give you the extra time. Don't worry about
the time. We are here to hear what you have to say, but we want
to hear it.
Ms. Taylor. Okay. Can you hear me now? Great. Okay.
From the start, I want to say that our system of financial
regulation is confusing, but remember we have the strongest
financial system in the world. We have an alphabet soup of
rules, regulations and regulators that oversee banks operating
in States, across state lines, internationally and in ways and
in businesses they have never operated in before. The situation
we find ourselves in sitting here today is an outgrowth of a
changing industry and changing technology, which has allowed
banks to conduct business in ways and in areas that they never
could have before, never even contemplated before. It is
confusing, but it is good. It is competition and capitalism at
its best.
Banking law has changed. Glass-Steagall has changed. We
have the Gramm-Leach-Bliley and Riegle-Neal now. Unfortunately,
regulation has not always evolved at the same rate as the
financial industry. We need to fix that. We have under-
regulation. We have overlapping regulation and we have complete
lack of regulation in some areas. But we need to fix this in a
way where everyone has input, not just the constituencies of
one agency, the OCC.
What brings us here today is neither helpful nor part of
the solution. The Comptroller of the Currency has promulgated a
series of regulations clarifying rules that they claim are
already in effect. They have preempted lending and deposit laws
for national banks. They have exempted them from the
enforcement of any consumer protection laws by any entity other
than itself, and they have granted operating subsidiaries the
same preemption rights and visitorial immunity as the parent
banks.
This means that a national bank and its operating
subsidiaries no longer have to obey state consumer protection
laws and no one other than the OCC has the right to go into a
nationally chartered bank or, importantly, its operating
subsidiaries to enforce any of these laws.
If all of this seems confusing to us, put yourself in the
shoes of the consumer. Who here knows whether the bank you use
yourself is a thrift chartered by the OTS, a national bank, or
a State-chartered bank? I have been asking this question of
financially sophisticated people in the financial capital of
the world, New York, this question on a regular basis over the
last few weeks, and I have to admit the result is decidedly
mixed. Most people do not have any idea what charter their bank
uses. Imagine a consumer going in for a loan.
If they go to a State-chartered bank, they enjoy all the
protections that State laws can give. If, however, they go to a
national bank, they lose all those protections. Rather, what
they are due in the way of protection is limited to the view of
a single entity and the opinion of a Comptroller who is
accountable to no one but himself to determine if that consumer
has been wronged and further if that consumer has any remedy.
If there is a problem at that national bank, the consumer
may be out of luck. State regulators and attorneys general can
no longer investigate consumer complaints against national
banks and their operating subsidiaries. We have to tell our
citizens to call the OCC and hope that the OCC will take care
of the problem. Two consumers with identical facts who go to
two different banks with different charters will be protected
to different standards.
The Comptroller insists that national banks do not engage
in predatory lending. To that point, I urge you to look at my
written testimony. You will read some horrifying stories there.
Here are some other things that the OCC wants you to believe:
one, that the new rules are no big deal; they do not really
change a thing, and merely do what Congress and the Supreme
Court intended all along; two, that you should pay no mind to
the erosion of the dual banking system which these new rules
will foster; three, that you should not worry that national
banks that hold over 55 percent of all banking assets in the
United States can now ignore virtually all state consumer
protection laws and devices, including the rights of state
attorneys general to bring actions for deceptive practices; and
four, that the OCC has standards that they hold their banks to
in order to prevent any predatory or deceptive practices. But
look at those standards, and that should give you pause. The
OCC prohibits lending based predominantly on the value of the
borrower's home and it prevents or prohibits deceptive
practices. There is nothing in there that is more specific than
that.
Conversely, State laws such as New York State's law, give
guidance as to what is unaffordable. We mandate that income be
verified. We prohibit flipping and equity stripping and we
proscribe the financing of single-premium credit insurance,
which is an extraordinarily abusive product when it is
financed. You should be concerned. Congress and only Congress
has the authority to fundamentally change the rules. If
Congress intended that States should have no say over what
banks do in their respective States, then it is up to Congress
to say so.
The last time Congress spoke, it clearly reaffirmed that
state consumer protection laws apply to all banks, not just
state-chartered banks. Please carefully consider whether you
still believe the dual banking system is worth preserving. If
the answer is yes, and I believe that that is the correct
answer, then I urge you, do not allow the Comptroller's rules
to stand.
I believe the U.S. banking system is as strong as it is
today because of the dual banking system, in large part. We
have avoided the trap of one monopolistic regulator up until
now. It is not a perfect system. It needs change, but we need
to change it only after due deliberation and consideration.
Like Churchill said about democracy, it is the worst system,
except for all the other ones. I do not doubt the sincerity of
the OCC's belief that it can handle all consumer banking issues
nationwide alone, without help from anyone, but I believe they
are wrong. State banking agencies and attorneys general are
valuable allies, not adversaries of the OCC in the fight to
protect consumers.
Preemption traditionally involves a Federal law supplanting
a conflicting State law, which the Attorney General said. Here,
in the absence of a conflicting Federal law, the OCC seeks to
brush away all State laws, all state consumer protection laws,
supervision and enforcement because they impose conditions on
the conduct of national banks and their subsidiaries. The
result is an entire industry that is now exempt from compliance
with state consumer protection statues and bound to good
behavior by the slim tether of nebulous regulation. It is not
only consumer protection that concerns us.
Chairwoman Kelly. Ms. Taylor, I am sorry but I am going to
have to ask you to summarize quickly please.
Ms. Taylor. Okay. This is more about the method the
Comptroller is using to sweep aside the State consumer
protection laws. This preemption is not necessary. Congress
gave the OCC a tool to use if a State law exerted too great a
constraint on national banks. It is a process that involves
public notice and public hearings. The Comptroller does not
trust in this process, neither market-driven corrections nor
the process set up by Congress. You, Congress, gave him a tool,
with hearings. He has preempted the State laws of 50 States and
the mission of 50 state attorneys general. If this is what you
intended, we will live with it. If it is not, please do
something.
Thank you very much.
[The prepared statement of Diana L. Taylor can be found on
page 145 in the appendix.]
Chairwoman Kelly. Thank you very much.
Ms. Williams, I was interested that you said that the OCC
acted because of compelling circumstances. I would like to know
what those compelling circumstances were that forced you to
finalize the rule 2 weeks prior to Congress reassembling, and
if there was something that was important enough that forced
you to do that 2 weeks prior to coming and testifying.
Ms. Williams. Chairwoman Kelly, I explained in some detail
in my written statement, particular circumstances included the
impact on the mortgage markets and credit availability of some
of the State predatory lending laws. What we were seeing were
situations where national banks were pulling out of markets.
They were pulling out of markets because of the uncertain
exposure that they would be subject to, the additional costs.
They were pulling out because of the inability to sell loans
from jurisdictions, both state and local, that had enacted
predatory lending laws. These laws were coming into effect on
certain timetables, so we were hearing that there were things
happening in the marketplace. The timetables were kicking in.
So we felt that it was appropriate to go ahead.
We felt that against a backdrop, though, as I said in my
oral presentation, of an effort where we tried to be very open
and inclusive of all interested parties in this process.
Chairwoman Kelly. Ms. Williams, I would like to know how
many letters you received during the comment period. I would
like to know how many Members of Congress actually wrote to the
OCC during the rulemaking process, and what was the nature of
the comments in both the letters from the Congress and from
other people.
Ms. Williams. The precise numbers, Madam Chairwoman, I
would have to get back to you on. I know of your letter. I know
we got comment letters from some other Members. Your letter
focused on the timing of the agency moving ahead. We had some
letters that expressed concerns about the impact of the
proposal on predatory lending. We had some letters that
forwarded concerns that were constituent concerns about our
proposal.
Chairwoman Kelly. I am aware of several dozen lawmakers who
wrote in opposition to your finalizing the rules, including the
Ranking Member and all of the Democrats on the Senate Banking
Committee.
Ms. Williams. Yes.
Chairwoman Kelly. The Ranking Member and 16 other Democrats
on Financial Services Committee, the vice chairman and two
subcommittee chairmen of Financial Services Committee, as well
as other senior Members of this committee, not to mention a
bipartisan group of other Members in the House and Senate not
on either committee of jurisdiction. If I am aware of all of
those letters, I am interested still in what was the compelling
reason why you needed to act before Congress could listen to
what you had to say?
Ms. Williams. Again, Madam Chairwoman, there were events
occurring that were having a real practical impact on the
ability of banks to engage in certain activities.
Chairwoman Kelly. Could you give me a specific example of
that?
Ms. Williams. There were particular State laws that began
to kick in, one in New Mexico on the first of January. I
believe that New Jersey went into effect on the first of
December. There were other initiatives underway in other
jurisdictions. There were consequences of the enactments of
these particular State laws. The secondary market was being
impacted. Institutions that made loans in some of these
jurisdictions were finding that they could not securitize them.
They could not gain additional funds in order to re-lend. There
was a credit availability impact as these laws became
effective.
Chairwoman Kelly. It seems to me there might have been an
option to have Congress, or for you to declare a moratorium on
State laws until the Congress could complete a thoughtful
approach to these rules.
Mr. Miller, I know you would like to respond to that. I
would like to ask both you and Ms. Taylor. I am particularly
interested in getting answers to the questions, Mr. Miller,
that you put in your opening statement. When I read it, I was
interested that you had some very specific questions with
regard to the implementation of the rules. Where will a State's
anti-deficiency laws fall? And where will State laws mandating
judicial foreclosure fall? I would like you to elaborate on
your concerns and the implications of these rules.
Mr. Miller. I would be very happy to, but let me just
respond to your colloquy with Julie Williams, as well, briefly.
The market and the States could have taken care of the
problems that she was just referring to. There is a good
example cited in Diana Taylor's statement, when Georgia really
pushed the envelope, probably further than anybody else, there
were some real consequences in the market, including the
secondary markets. It looked like there would be unavailability
of credit. The Georgia legislature then went back and changed
the law. The same thing could have happened to New Mexico. The
same thing could have happened to New Jersey. These rules were
not necessary on January 7 to deal with those problems. Those
States could have dealt with those problems.
As to the questions that you raised, the broad, broad
nature of the preemption here, that I mentioned before, any
condition that affects the ability to fully exercise the
authority is preempted. All those things posed in the
questions, basic consumer issues, basic consumer protections
and consumer functions, could well be preempted by this far-
reaching preemption by the OCC.
Chairwoman Kelly. Ms. Taylor, would you like to respond to
that?
Ms. Taylor. Actually, I want to add one additional thing. I
think that market forces will have a lot to say about this,
too. This is a capitalistic country. One of the objections to
the predatory lending laws, especially in Georgia and also in
New York State is that the secondary market, the consequences
in the secondary market of the secondary market buying a loan
that was deemed to be a predatory loan. I just heard this
morning that Fannie Mae had said that they will not buy
mortgage loans made by national banks that do not comply with
State laws, which I think is a very interesting thing to have
happened. It shows that we have total confusion now. Where the
OCC has tried to clear up something, more confusion is reigning
now than did before.
Chairwoman Kelly. I just want to follow up on another piece
of what you touched on, Mr. Miller. The OCC preemption rules
really adopted for loans, but where do you think that leaves
the consumer if a national bank engages in unfair or deceptive
non-lending practices? Whose laws are going to govern there? Do
we know?
Mr. Miller. We do not know for sure, but it is very
possible, very likely that the State laws have been preempted.
It is pretty clear that the State authority to enforce those
laws, if they have not been preempted, is taken away. So it all
comes back to the OCC, which does not have the resources,
cannot have the resources to do what 50 state attorneys general
have done, what Diane and 49 of her colleagues are able to do,
and does not have the expertise.
Look at what the final conclusion of all this is. If the
OCC can decide massive preemption of State laws, eliminate
state authorities in enforcing what is left, and set itself up
as really the sole enforcement agency on consumer protection
and related issues for national banks, and describe what those
rules are, then really you are going to have a level playing
field problem with state banks. They are going to say, those
are much better rules; we want to play by those rules. There is
going to be a force to have those be the rules, then, at the
State level as well.
So what you would have is the OCC setting the basic
consumer protection rules for state and national banks, and the
agency having all this authority having the very least
experience in these kinds of rules. That is why I think that
this committee and this Congress really needs to look at the
public policy questions here and balance the appropriate
interests between banks and consumers and between States and
Federal authorities.
Chairwoman Kelly. Thank you. I have gone over my time.
Mr. Gutierrez?
Mr. Gutierrez. Thank you very much.
I just want to go quickly back to Ms. Williams. When the
Chair asked you about correspondence and letters from Congress,
I was very surprised that you did not mention that on April 3
of 2003, nearly 9 months ago, you did receive a letter directed
to the Director of Currency well before you promulgated these
rules, in which we said we believe that such action would
violate a clear congressional directive that States be
permitted to augment Federal law; that said in that letter that
we wrote, too, the OCC appears to be pursuing a conscious
strategy of preemption that increasingly permits national
banks, as well as national banks operating subsidiaries,
whether a bank or not, to disregard most State laws, ignore
virtually any request or directive of a State banking
regulator; and that ended by saying we urge the OCC at a
minimum to return to the presumption analysis standards of
Barnett.
We wrote this letter and your office did exactly what we
asked you, we gave you an opinion you should not do it. So it
should be very clear that you did not do this in a void. It was
not as though you did not hear from those of us that are at
least elected, elected to do this kind of policy work. We gave
you our opinion, and this was a bipartisan letter. Former
Chairman Leach of the Banking Committee signed it, along with
others, so I was pretty surprised.
When New York State legislators sent you a letter, they
said, listen, can't you wait for us to get back together? Can't
you wait for us to get back to Washington, DC so that we can be
there, so that we can talk? It seems to me that you could have
waited. The seventh, our schedule is pretty clear about when we
are coming back to Congress and what the first date is, the
State of the Union. I am sure Mr. Hawke follows when it is the
President is going to be here and when he calls Congress to
session. That was the first day we were back, for the State of
the Union address.
Ms. Williams. Could I respond a little bit on the process
point?
Mr. Gutierrez. Sure. Unlike the Chair of the committee, I
am going to try to keep to the 5 minutes because then she will
bang that gavel over my head. I am just kidding, but I will
allow you to respond, please.
Ms. Williams. Maybe you will not count this against him?
Mr. Gutierrez. Sure.
Ms. Williams. We tried very hard to be very inclusive and
to talk to everybody that had issues and concerns about what we
were thinking about doing. As I said, I very much regret if we
have created an impression that we were trying to get something
out while Congress was out. In fact, the regulation appeared in
the Federal Register I think about a week, just a week before
you were back in.
Mr. Gutierrez. I understand. I just did not want the
perception to be given at this hearing that, (A), Members of
Congress did not fulfill their due diligence, and did not give
an opinion 9 months prior to the OCC's opinion directives being
issued. We did give you an opinion on where we stand.
Ms. Williams. We got a variety of opinions.
Mr. Gutierrez. I understand, but it seems as though since
here before this committee, and there were Members of this
committee that wrote that letter, you might have remembered
that, but I understand.
And secondly, while we understand you did it on January 7,
we did simply ask, at least the New York State legislators did
ask to wait. I don't know what was so urgent about doing it on
that day. I think in the future maybe if you wait for us to get
back, we can all work together.
Let me just ask a question, because I think instead of
asking you some of the technical questions, I want to ask you a
general question on operating procedures under the new
regulations. Mr. Rickoff, New York State, he took out a
mortgage for $27,000; should have been paid off in 1999. He did
not discover it until 2003 that he had paid another $10,000.
But he kept paying his monthly bill each and every month. Mr.
Hall called the bank. The bank, which is First Tennessee,
explained that he had been undercharged $16 a month from his
original lender, and that despite the fact that his loan had
been sold twice, that has happened to me and I am sure
everybody in this room, the oversight was not discovered until
recently.
So the bank, the Third Bank I think in this case, it was
finally sold to, said, you know what we are going to do because
of that oversight of $16? We are not going to call the consumer
and tell him, hey, you underpaid $16 or maybe go back to the
other two banks and say, maybe there is some law here that says
that you kind of screwed up on this. What we are going to do is
we are going to unilaterally extend your mortgage from 30 to 41
years, just on our own. We are not going to tell you about it.
I think the story has been very well published. Here is
what I would like you to respond to in terms of this issue, of
a consumer. So the consumer goes to the Attorney General of the
State of New York. I would like to put in the record the
transcript. We have the original tape, Madam Chair, but this is
a transcript.
Chairwoman Kelly. So moved.
[The following information can be found on page 232 in the
appendix.]
Mr. Gutierrez. This is what the bank called back, an
assistant Attorney General of the State of New York, says, Mr.
Fleischer, who is the assistant Attorney General, this is
Barbara Brown Eddy from First Horizon Home Loan Corporation
returning your call, regarding the Richard Hall matter. You
mentioned that you sent a letter to us. I am located in Texas.
I do not know if that letter was sent to our Texas location or
not, but it has not made it to the legal department. I need to
advise you, assistant Attorney General in New York, right, that
as an operating subsidiary of a national bank and pursuant to
an advisory letter from the Office of the Comptroller of
Currency, as an operating subsidiary of a national bank, we are
governed by the OCC.
I am not going to read the whole letter for the purposes of
time. She goes on to say she is not at liberty to discuss this
any further with the assistant Attorney General. Basically, she
is blowing him off, saying, I do not have to talk to you. The
OCC says I do not have to deal with you, Attorney General, on
this issue, and she called him back. We have the tape. And then
she says, but again, we would have to respond to any inquiry
that is directed through the OCC, and not through a State
agency. She leaves her number, which I am not going to repeat
because then, who know, maybe she will receive thousands of
phone calls and that would be unfair to her.
[Laughter.]
It really concerns me that if I, as a Congressman, I have
someone come to my office, which I have all of the time and I
hope they continue to come, what I usually do is I call my
Attorney General, Lisa Madigan, because she has a consumer
office. I cannot call the Mayor. He is a good guy, but is not
really equipped. The county is really not equipped. The people
that are really equipped are my state guys. They have a
consumer fraud division. That is all they do, so I call them
up. Are you saying that if I call her up and she tries to deal
with the case, that I should really call you and your legal
department, and not call my Attorney General? And that no one
in the State of Illinois should ever bother again with the
Attorney General when it comes to a nationally chartered bank?
Ms. Williams. No, sir.
Mr. Gutierrez. Well, you better tell this woman that, at
the bank.
[Laughter.]
Ms. Williams. What we have said to national banks is if
they are contacted by State officials concerning issues about
enforcement of State law by the State officials, we want the
national banks to tell us of those contacts. We have not told
national banks you cannot talk to State officials.
Mr. Gutierrez. That is what she said. We will give you the
tape.
Ms. Williams. I am not disputing what you got.
Mr. Gutierrez. But since you oversee them, I hope you
reprimand them and tell them do not say that. That was the
implication; that they did not have to deal with us.
Ms. Williams. Let me just say, what we have said. The
second and larger issue here really is one of cooperation
between the OCC and the States. It is something that we have
been trying to work hard on and have not made as much progress
as we wish we had.
We found out about this particular situation when we got a
call from a reporter. When we learned about it, we called the
bank. The bank got in touch with the people that handled the
mortgage operation. It percolated up to senior management.
People looked at it and said, there has been a mistake. There
was a mistake made in 1974 when the monthly payments for this
gentleman were calculated.
Mr. Gutierrez. You know something, we understand there was
a mistake and we, most seriously, thank you that it was finally
resolved and the gentleman got the situation corrected.
Ms. Williams. The situation is resolved.
Mr. Gutierrez. We understand that the situation is
resolved. I understand that you guys took action when you
learned about it. All I am saying is that clearly there are
institutions out there, financial institutions out there like
this one in this case that said to an Attorney General of a
State and his office, elected official law enforcement
officials. I mean, can you imagine a bank robber saying that?
That was an FDIC-insured bank. I crossed state lines. If the
FBI does not call me, Chicago Police Department, I do not have
to talk to you.
Start thinking about the ramifications. I do not know if
the analogy is the best one, but it is what comes to mind. I am
not trying to accuse the bank of being criminal in their
intent, but they certainly hurt this consumer because in the
end, the situation was rectified. I just want to say that we
need to sit down. I know I am going to ask the Chairwoman and
the Members of the committee to review this situation to see
what we have to do legislatively, because the last time I
checked, we could still pass laws here that do govern the OCC
just in case there is some area of ambiguity here, so that we
can clear that up.
Lastly, if you could send us in writing all of the times
the OCC has sued and what damages the OCC has collected in
civil court proceedings against financial institutions for
fraud, predatory lending and other consumer violations. Please
tell us how many staff people you have and how many are for
each State of the 50 States, and whether you have developed a
coordinated effort in each of the 50 States so that just in
case we lose and you win, I know where to send my consumers.
Thank you.
Ms. Williams. Congressman, you always win ultimately
because you make the laws. If I could make, just to clarify a
point on process.
Mr. Gutierrez. But the bank has a lot of people here, too.
[Laughter.]
Ms. Williams. The issue about where the complaints come in
is a very legitimate issue. What we have asked is that if a
complaint concerning a national bank or a national bank
operating subsidiary is received by a State agency, that they
refer those to our consumer assistance group. We also get
hundreds of referrals from States. We get referrals from New
York. We get referrals from the New York AG's office. We get
referrals from the New York AG's office concerning operating
subsidiaries. We get referrals from Mr. Miller's office. We get
literally thousands of complaints that come to our consumer
complaint office that are misdirected. They do not concern
national banks or the institutions that we supervise. We try to
refer them to the agencies that have jurisdiction over the
particular entities.
So I would second Superintendent Taylor's point that
consumers do not always know the regulator of the institution
that they are dealing with. What we try to do is to get the
complaint to the regulator that is going to be in the position
to act quickly and most effectively for the consumer. That is
what we are about. We are not about trying to deprive the
States of a role. We are not about trying to cut them out of a
cooperative process. We are not against having a dialogue with
them about what we are doing and whether what we have done has
been adequate.
So it is not a question of eliminating the States from
having a role in protecting their consumers. We have resources
to do this. We are prepared to do it. We think it is our
responsibility to do it. States have resource issues. Let them
devote those resources to problems in other areas where there
is not a regulator that is saying, we will try to deal with
this. Don't consumers benefit more if you spread the resources
more widely?
Mr. Gutierrez. I beg leave of the committee. I have an
11:30 meeting and I am going to try to get back here, Madam
Chair, as quickly as I can.
Thank you.
Chairwoman Kelly. Thank you very much, Mr. Gutierrez.
Mr. Gutierrez. Thank you to all the witnesses.
Mr. Miller. Thank you.
Chairwoman Kelly. Ms. Williams, when you get your response
written for Mr. Gutierrez, he has asked you about the civil
complaints. I would like you also to include what jurisdiction
you have over criminal complaints, please.
Ms. Williams. We do not have the ability to bring criminal
charges. It would be the Department of Justice.
Chairwoman Kelly. So it would not be state attorneys
general?
Ms. Williams. A state Attorney General can bring criminal
charges against a national bank.
Mr. Miller. Wasn't that preempted?
Ms. Williams. No. It does not say that.
Mr. Miller. Doesn't it say non-banking criminal cases?
Ms. Williams. No. It says criminal laws. Generally
applicable criminal laws are not preempted. In fact, we have
worked very cooperatively, believe it or not, with Attorney
General Spitzer on some matters. So generally applicable
criminal laws are not preempted.
Chairwoman Kelly. It sounds to me, from Mr. Miller's
question, there is a bit of confusion here that perhaps we need
to discuss.
Ms. Williams. I would be happy to.
Chairwoman Kelly. I think there is confusion in general
about this finalized rule. I am going to once again call on the
OCC to not implement this rule until we have some clarity. It
is not clear.
Mr. Garrett?
Mr. Garrett. Thank you.
Just two general questions. The first question is to either
Mr. Miller or Ms. Taylor. You will find no one on this panel, I
believe, that is a stronger advocate for States's rights. I sit
here thinking of the arguments that you are making and the
regular phrase of States being the laboratory for experiments
and new approaches, and what have you.
This committee also recently just was successful with FCRA
and the benefit to the nation of having uniformity in that
area. I was not around years back when that was passed or
authorized the very first time, but I wonder whether some of
the same arguments may have been made at that time, as far as
the States rights issues, as far as local regulation on those
issues, and that we are depriving the States of those areas
that they have the expertise in. When we did it this time, I
must say there was unanimity in saying that it is a system that
is working and the worst thing in the world would be if we had
not succeeded in reauthorizing the legislation.
So maybe we will find ourselves if this regulation stands,
maybe we will find ourselves 20 years from now reauthorizing,
and we will say we could never have done without this.
Mr. Miller. Maybe, but I sure don't think so. I think there
are some big, big differences. One difference is that you, this
committee, this Congress, looking at a particular area and
balancing the interests of consumers and lenders, and looking
at the Federalism question, and it becoming clear to you that
the preemption in this setting makes sense. That is the process
we think should happen. This was done not by you as elected
officials, but by a single bureaucrat. And it is done in a
broad, breathtaking way, inconsistent with what has happened in
the past.
What is being done here really goes to the core of the dual
banking system. It will alter substantially the dual banking
system that Diane Taylor described so well and has served us so
well. So I think there are some real differences, both in terms
of the process of the Congress weighing all these interests,
and the scope of what is being done here, and the effect
therefore on the dual banking system which has served us very
well.
Ms. Taylor. Thank you. The preemption that is contained in
the Fair Credit Reporting Act was done by a legislative body of
elected officials responsible to the citizens of their States,
and after considerable debate. This was done according to the
process, and we fully, fully supported that. In fact, I think
that CSPS testified in favor of that.
I just want to say from a regulatory standpoint, my
philosophy as a regulator is that there are three things that
we do. Number one, we are here to ensure the safety and
soundness of the banking system. Number two, we are here to
ensure that banks are allowed to make a profit and that there
is a reasonable positive correlation between risk and return.
The third leg of that stool is that we protect consumers. What
is being done here is the regulatory bodies at the State level
are being deprived of the third leg of that stool, which is to
protect consumers. I think that is damaging to everybody.
Mr. Miller. I think if you let this go, 5 years from now
you will say, how could we have done that. The consequences
will be so wide-range and so negative.
Mr. Garrett. Thank you.
Ms. Williams, if I may, one of your opening remarks I made
note of. It touched me. You said that part of the authority
that allows the agency to go forward with the regulation was
something to the extent of that Congress was silent, I may be
paraphrasing you wrong, as far as enabling the States to act in
this matter. Do you remember that language?
Ms. Williams. Yes. I think what I was trying to capsulize
is the point that in the case of the preemption issue here, in
essence, Congress has granted national banks a power under
Federal law, and it has not conditioned those powers. You have
States trying to say, no, you cannot do that, or you cannot do
that except in these particular ways. Congress can say that
State law is applicable to national bank activities and it has
done that. There is, for example, intra-state branching. But it
has not done that in the area of lending and deposit-taking,
which are the areas specifically identified in our regulation.
What you have is a Federal power that empowers the Federal
entity to do a particular activity.
Mr. Garrett. I guess I will just close on this. It seems
that the arguments, where it turns the Federal idea upside
down, and I am thinking of the Tenth Amendment that says all
rights not specifically delegated to the Federal government are
retained by the people and the States respectively. This, in
essence, puts the onus on Congress, then, to know every single
thing that the States are going to possibly do in the future,
or might want to do in the future, and be specific in our
legislation when we pass giving that authority, and say A
through Z is what the States may do 5 years down the road and
we have to think about that.
I would think the Constitution is the other way around,
that the States can do anything they want to do unless we are
specific and we have a constitutional authority, first and
foremost, that allows us to pass that legislation to say they
cannot.
Ms. Williams. Forgive me for sounding like a legal techie
here, but the essential point is that Congress has acted here.
It has given national banks certain powers. It has given those
banks power without restriction. The basic Supremacy Clause
argument is that if there is a Federal power or the Federal
government has acted, then the States may not restrict the
exercise of that power. That is a much, much distilled version,
but that is the essence of the argument.
One thing I would add, there has been reference to what
Congress did recently in connection with the Riegle-Neal
legislation. I think it is very important to look, again
forgive me for sounding like a legal techie here, but look at
exactly what Congress said in Riegle-Neal. It identified
certain types of State laws, including consumer protection
laws, that would apply to branches of an interstate bank, but
then the law says unless that State law is preempted by Federal
law. And then Riegle-Neal further says that to the extent that
any State law is applicable to the interstate branches of
national banks, that State law shall be enforced by the
Comptroller of the Currency.
So if you are looking for the most recent congressional
enactment that reflects congressional intent, I would point you
to that.
Chairwoman Kelly. Thank you very much, Mr. Garrett.
Ms. Maloney?
Mrs. Maloney. Thank you, Madam Chairwoman. I think you and
many others have raised many important concerns.
I would like to ask Ms. Williams, and following your
argument, I would like to bring up the North Carolina State
statute, which has been in effect for 3 years and many people
say it is a very effective law in comparison to the Georgia
law, which was too restrictive, and the rating agencies raised
concerns and therefore it was struck and modified.
I think this gives an example of how Federalism or state
actions help define and come up with solutions to the
challenges before us. Do you know of any loan that was not
given because of the North Carolina law? Or do you know any
problem with the North Carolina law? This was cited several
times in other hearings that we have had.
Ms. Williams. Congresswoman, I know of institutions that we
regulate that have decided not to do subprime lending in North
Carolina and other States because of concern about triggering
some of the----
Mrs. Maloney. In North Carolina? Really?
Ms. Williams. Yes. There is a vigorous debate in the
economic academic literature going on right now about whether
the North Carolina law has had an effect on reducing legitimate
subprime credit availability in North Carolina.
Mrs. Maloney. I would request that in writing, because we
have had several North Carolina bankers and consumer groups
testify that it was a fine law and was working well. So if you
have some examples where loans were not permitted in North
Carolina because of the State law, I would really like to see
that.
Ms. Williams. What I have is anecdotal, but I will be happy
to provide you with copies of these economic analyses.
Mrs. Maloney. No, I would like a factual example, not a
think tank, but a consumer that did not get a loan because of
that.
But I want to very importantly go back to the comparison or
the Statement that Mr. Gutierrez used earlier. I found that
very interesting. Most importantly, it seemed to me, the point
of his example was that the consumer who was definitely wronged
would never have known to call the OCC. In that particular
case, and I would say in every case, a consumer would call
people they know, the State Attorney General.
So my question to you, if this goes into effect, which I
hope it does not, I think we need more debate and I think we
need to have hearings. We had many, many hearings on credit. It
absolutely dominated the agenda for this committee for 2 years.
I would like to know, how are you going to reach out to
consumers? Consumers do not even know who the OCC is. Are you
going to have a massive public awareness campaign of ads on TV?
If you have a problem with a loan, call the OCC, or if you
cannot get information, call us?
I would like to hear from Superintendent Taylor and
Attorney General Miller. I know that you have vigorous
constituent services departments, because my office works with
them on constituent challenges all the time. How many people in
your divisions are now working in consumer protection agencies
on a State level? Would their jobs then be preempted?
Therefore, how many people do you have now in consumer-related
assistance? How many more people would you have to hire if 50
state attorneys were then shifting their whole staff away from
constituent service in this particular area to other areas? Do
you understand what I am saying?
The bottom line that I hear in my office is what Mr.
Gutierrez was talking about. If a consumer has a problem, they
call us or they call the Attorney General. How are you going to
help these consumers? No one knows who the OCC is except for
those of us on the Financial Services Committee. How are you
going to reach out and let the public know about this?
And can you respond, too, Ms. Taylor, on how many people in
your office are working on this challenge now? What would
happen to them?
Ms. Taylor. Actually, we have 18 people, I think it is, in
our consumer protection bureau itself, but I would say that
everybody in management at the banking department also works in
consumer protection. I take several calls at least a day from
legislators and congresspeople and constituents with
complaints. Everybody is involved in it to some extent.
Mr. Miller. We have about 18 people as well in consumer
protection, a broad-range of activity. But just think about the
foolishness of it. If one of our investigators gets a call
about a banking problem, the first thing they have to say, are
you a State or a Federal bank, or a national bank? It is much
more efficient for that person to just handle the complaint,
particularly if it is a credit card complaint or something like
that. There is no way that the OCC at the national level can
handle these individual complaints.
One of the things we asked when we met with the Comptroller
and Julie on this issue, what about the do-not-call list? Isn't
what you are saying, doesn't that point to you having to do the
do-not-call work for national banks? He said yes, we will do
that. I mean, it just does not make sense in terms of
efficiency and in terms of state and Federal relations; no
sense at all.
Ms. Taylor. Congresswoman, could I just add something?
Mrs. Maloney. Certainly.
Ms. Taylor. At the banking department, we get about at
least 500 calls a day. That is one stat.
Ms. Williams. If I could wrap up on that particular point?
As to numbers, we have between 100 and 200 compliance
examiners. We have roughly 50 people that work in our consumer
assistance group. All told, we have about 1,800 examiners. We
have hundreds of examiners who are resident in our largest
banks and who are on-site able to deal immediately with issues
that are brought to their attention.
One of the important things to bear in mind here is that
all we do is national banks and their subsidiaries. Mr. Miller
has very broad responsibilities. Superintendent Taylor has
responsibilities that go beyond just state-chartered banks. Our
resources are directed at the safety and soundness and the
business practices of national banks and the entities that they
control. So we think we have sufficient resources to handle the
issues. We are getting referrals from the States, as I
mentioned earlier.
The issue here probably ought to be, how can we most
efficiently work together with the States to get prompt
resolution of customer problems. I have to tell you that when
the national banks get a call from the OCC, they will respond
very promptly. So what we ask the State AGs and the State
banking departments is that if they get a complaint that
concerns a national bank or a subsidiary of a national bank, to
please refer it to us. We will try to resolve it. We are
willing to collaborate with the State agencies to make sure
that they know what we have done with it. We are willing to
have a dialogue with them if they do not think we have done
enough.
There is a legitimate issue with consumers of not being
sure who is the regulator of the financial institution that
they are doing business with. As I mentioned earlier, we
literally get thousands of complaints that we refer to other
regulators because those are the appropriate entities to handle
the issue with that particular institution. So there is a lot
of potential here to work together and to try to maximize
prompt resolution of consumer issues. That is what we need to
do.
Chairwoman Kelly. Thank you, Ms. Maloney. I am sorry.
Mrs. Maloney. If I could place in the record an article in
the New York Sun on the number of complaints that come into the
OCC with Comptroller Hawke.
Chairwoman Kelly. So moved, without objection.
Actually, without objection, we have several statements
that Members have asked to include in the record. They are
letters of correspondence from Members to the OCC. There is a
comment letter signed by all 50 state attorneys general, and
statements from the National Association of Realtors, the
Mortgage Bankers Association of America, and the Financial
Services Roundtable. Without objection, they will be added to
the record. So moved. Thank you.
Mr. Davis?
[The following information can be found on page 274, 367,
386, and 354 in the appendix.]
Mr. Davis. Thank you, Madam Chairwoman.
Let me say, Ms. Williams, if I can get a better
understanding of exactly what is the scope of these regulations
that we have been talking about today. Let's say that against
all odds, that tomorrow the Alabama legislature passes some
kind of venturesome new law that deals with discriminatory
practices in the lending market. Is that law going to be
preempted under the OCC regulations?
Ms. Williams. When you say ``discriminatory,''
discriminating against an individual in getting a loan?
Mr. Davis. Yes.
Ms. Williams. No. It is not preempted.
Mr. Davis. All right. Now, let us say that the day after
that the State of Alabama passed some kind of an unfair lending
practices act and they did not refer to it as an anti-
discrimination act, but they described it in terms of unfair
lending practices. Would that be preempted?
Ms. Williams. If what they were passing is a law that says
essentially do not engage in unfair and deceptive practices,
that would not be preempted.
Mr. Davis. Let me try to put that in the context, though,
of something that you said at the outset. One of the things
that you said in your opening statement is that the OCC lacks
the power to really define what constitutes a deceptive
practice. One of the concerns you have heard from several
Members on the committee is whether or not we have a strong
enough national framework in place right now and whether the
OCC has adequate power right now to address predatory lending
and to address problems of deceptive practices.
If the OCC does not have the power to define what
constitutes a deceptive practice, doesn't it seems fairly
obvious that there is some congressional intent for the States
by definition to pick up some of that slack and have a fair
amount of leeway in that area?
Ms. Williams. Congressman, this relates to how the
rulemaking authority under the Federal Trade Commission Act is
allocated. What Congress did, and you can certainly change
this, is to provide that with respect to banks, that the
rulemaking authority is vested solely in the Federal Reserve
Board to define particular acts or practices as unfair or
deceptive.
Mr. Davis. Let me ask this follow-up, then. Mr. Miller, do
you agree with Ms. Williams's observations that if Alabama or
your State of Iowa were to pass an anti-discrimination law
tomorrow with respect to lending practices that it would not be
preempted?
Mr. Miller. I think that is correct.
Mr. Davis. Do you agree with her characterization that if
there were to be some kind of an unfair lending practices act
it would also not be preempted?
Mr. Miller. I think there is a great likelihood that that
would be preempted.
Mr. Davis. That is would be preempted?
Mr. Miller. It would be preempted because it would impose
conditions on their ability to make loans.
Mr. Davis. Okay.
Mr. Miller. That just fits this broad, broad prohibition;
this broad, broad preemption that I just talked about. It is
hard to imagine anything in the consumer protection area that
would not be preempted by this. That is why this is so
revolutionary.
Mr. Davis. So Ms. Williams, your argument would be, if I
understand it, that there is something unique about
discrimination laws? I recognize we are not talking about that
in a normal Title VII context, but you are saying there is
something unique about the use of the phrase ``discrimination''
that somehow takes it out of the preemption zone. Is that your
position?
Ms. Williams. Let me explain it in a different way and
clarify the point that Attorney General Miller was raising in
response to your question and my earlier answer. If you have a
State law that says do not engage in unfair and deceptive
practices; do not discriminate in your lending practices; of
course, we do not argue that it would interfere with a national
bank's Federal powers that it has to be allowed to engage in
unfair or deceptive practices or discriminatory practices. That
type of law protects against practices that are fundamentally
inconsistent, abhorrent, to national banks and the way we want
to see the national banking system operate.
If you have a State law, and it may be labeled a fair
lending law, that says you can only make loans with these
terms, not that you cannot make loans that are unfair or
deceptive, but you can only make loans with these terms, that
kind of law comes in conflict with the authority under Federal
law that national banks have to make loans. That lending
authority is not subject to that kind of state-imposed
condition.
Mr. Davis. Let me make this one observation, Ms. Williams,
and I suspect the Attorney General might agree with this. I
understand as a practical matter how the nomenclature works,
but in terms of how policy is made in this area obviously the
State's ability to attack all of the problems that make up the
whole culture of predatory lending now, it might be, if I have
time to finish this observation, it might very well be that
that attack is pursued just as aggressively under one type of
claim, some kind of a fair lending claim, that does not purport
on its face to address discrimination.
It may be the that one could raise some kind of anti-
discrimination claim, but I think the Attorney General's
concern is that given the relative lack of enforcement power
the OCC has, if we truly view this as a national problem, if we
think it is affecting the fairness of the market, don't we want
to provide at least enough opportunity for the States and for
regulators to use whatever tools are available and not have to
just crowd them under one particular label?
Ms. Williams. What I would take issue with you on is your
Statement about our relative lack of enforcement authority. We
have a tremendous arsenal of enforcement tools, informal
supervisory actions and a number of types of remedies and
enforcement actions we can take. We can take action against
unfair and deceptive practices. I would point you to probably
the most notable situation which involved a bank out in
California that was engaged in some inappropriate credit card
marketing practices. We took an enforcement action against that
institution. We took that action under Federal law and we also
enforced the California Unfair and Deceptive Practices Act, and
we got over $300 million in restitution for the customers of
that institution.
So we have a tremendous arsenal of tools that we can use to
deal with these issues. We have the ability to use them in all
different levels and to get very quick response from the
institutions we supervise.
Chairwoman Kelly. Thank you very much, Mr. Davis.
Mr. Crowley, have you questions for this panel?
Mr. Crowley. Thank you, Madam Chair.
Just for Ms. Williams, there is no question if one examines
the recent history in New York State and the success rate of
our Attorney General, Mr. Spitzer, especially as it pertains to
use of the Martin Act in New York state in going after ill-
practices on Wall Street. We may also have a situation here,
and I will use for example the one case that I know of with
First Tennessee in which on behalf of an upstate New Yorker who
had a loan dating back to the 1970s ended up paying his loan
and then some, only to find out that he had overpaid by almost
$10,000 to First Tennessee, that was not the original bank. He
could not get any justice, basically. He needed to find a way
to do that and went to the Attorney General's office. In the
interim, I understand that OCC got involved.
What can be done to help, because he had the opportunity of
a perfect storm again. You have this one individual that Mr.
Spitzer can come in and really do the right thing by and bring
the proper pressure to bear. What mechanism exists right now
between OCC and attorneys general like Mr. Miller, like Mr.
Spitzer? And what can be done to better those relationships?
What penalty, for instance in First Tennessee, was brought to
bear upon them for this outrageous act? And what will be done
in the future to help stymie that, outside even from criminal?
I am talking about this from the monetary point of view.
Ms. Williams. Congressman, you missed a little bit of my
discussion of the processes of referrals between the OCC and
the States. We have processes where when we get consumer
complaints that pertain to institutions that we do not
supervise, we refer those to the appropriate state agencies or
other Federal agencies. We also get referrals from the States,
the State banking departments, from state AGs. We get referrals
from Mr. Miller's office. We get referrals from Mr. Spitzer's
office. We get referrals from Superintendent Taylor's office.
What happened here is that once the AG's office became
aware of this particular issue, rather then calling us or
referring the matter to us, the AG filed a lawsuit.
Mr. Crowley. That is one way of getting your attention, I
guess.
Ms. Williams. It did. I heard about it from a reporter. We
followed up immediately with the institution. They got the
issue up to a level of management that looked at the situation
and said, this is not the customer's mistake. This was a
mistake that occurred in 1974 when somebody miscalculated what
the monthly payment should have been. Their immediate reaction
was, we want to fix this for the customer, and they have. It
has been resolved. It was not necessary to file a lawsuit. We
could have resolved this much more quickly.
Mr. Crowley. What was the resolution?
Ms. Williams. As of the date that the customer originally
thought that he had paid off the loan, everything that he paid
beyond that has been re-funded, and a certain amount of
attorney's fees are being paid to his attorney for her time in
handling the matter.
Mr. Crowley. I appreciate that, Ms. Williams, but I think
also, from reading the press clips that I have read, that
apparently the communication between OCC apparently, and Mr.
Spitzer's office, were maybe not as good as they ought to have
been.
Ms. Williams. It was nonexistent in this case, and that is
unfortunate.
Mr. Crowley. Even after you resolved the problem, is what I
am saying.
Ms. Williams. That I cannot speak to.
Mr. Crowley. There is this one article I will bring to your
attention.
Ms. Williams. Okay, thank you.
Mr. Crowley. Because in my opening statement, I have
already said I am somewhat sympathetic toward what you are
trying to do, and at the same time cases like this make my job
much more difficult. So I would appreciate in the future, as
was mentioned before, the Chair also had some difficulty in
terms of the communication between her office and OCC. Those
kind of things do not help us in our daily lives.
Ms. Williams. I understand.
Mr. Crowley. I appreciate it. I yield back.
Chairwoman Kelly. Thank you, Mr. Crowley.
The Chair notes that there are Members who may have
additional questions for this panel which they will submit in
writing. Without objection, this hearing record will remain
open for 30 days for Members to submit written questions and
for witnesses to place their answers in the record.
We thank you for your time and your patience this morning.
With that, this first panel is dismissed.
Mr. Miller. Thank you, Madam Chairman.
Chairwoman Kelly. We thank you, Mr. Miller.
While the second panel is taking their seats, the Chair
will introduce them. The first person is Mr. Edward L.
Yingling, an Executive Vice President at the American Bankers
Association; Mr. John Taylor, President and CEO of the National
Community Reinvestment Coalition; Ms. Karen M. Thomas, the
Director of Regulatory Affairs at Independent Community Bankers
of America; Mr. Joe Belew, President of the Consumer Bankers
Association; Mr. W. Lee Hammond, a member of the board of
directors at AARP; and Mr. Hilary O. Shelton, Director of the
Washington Bureau for the National Association for the
Advancement of Colored People.
While this panel is being seated, let me just remind the
panelists that there is a box at both ends of the table
indicating the lights. The red light means stop; the yellow
light means you have 1 minute left; and the green light means
it is time for you to begin.
I appreciate your testimony and your appearance here before
the subcommittee. If the panel is ready, let us begin with you,
Mr. Yingling.
STATEMENT OF EDWARD L. YINGLING, EXECUTIVE VICE PRESIDENT,
AMERICAN BANKERS' ASSOCIATION
Mr. Yingling. Thank you, Madam Chairwoman. We appreciate
your holding hearings on the recent OCC rule.
The ABA strongly supports this rule. We believe it is
firmly based in law. I have been involved in banking law for 30
years. In the last 20 years on my office wall I have had
replicas of the signature pages from two banking acts dated
February 25, 1863 and June 3, 1864. The signatures are Abraham
Lincoln's. While Lincoln is obviously better known for other
great accomplishments, these two acts together represent his
great contribution to financial regulation. That contribution
is the creation of the national banking system, and therefore
the dual banking system.
In creating the national banking system, Congress
explicitly gave to the OCC exclusive powers to regulate
national banks. Congress also gave the Comptroller the
authority to preempt state and local laws that would conflict
with those powers. This is a key point. One hundred and forty
years ago, Congress clearly gave the OCC the authority that is
used in this rule. Previous Comptrollers have used that power
in many instances over the last 140 years. Furthermore, court
after court, including the Supreme Court many, many times, has
upheld that authority, as shown in the list of cases attached
to my testimony.
Despite the controversy, to a very large degree the OCC
rule does not break new ground. The areas covered in the rule
have in many cases already been subject to preemption by the
OCC. In the past, these preemptive rulings went forward
generally on a case-by-case basis. That approach worked when
state and local actions that were preempted occurred
infrequently. Recently, however, we have seen a proliferation
of such state and local actions. These actions often ended up
in the courts, where preemption was always upheld.
We believe, therefore, that it was very important that the
OCC issue this rule in order to make it clear to all parties
where the line on preemption is. While most legal experts in
this arena know that state and local laws that impinge on the
fundamental activities of national banks are preempted, state
and local officials have often proceeded despite the virtual
certainty that their efforts will be struck down by the courts.
In the meantime, national banks face costly uncertainty as
to how to proceed with the affected businesses. Banks, the OCC
and the taxpayers of those state and local governments end up
wasting resources in litigation. This OCC rule will help avoid
that uncertainty and litigation costs by bringing together in
one place what was in fact occurring on a case-by-case basis in
any event.
A second key point, what many of the opponents of the rule
are advocating would in fact render the dual banking system
virtually meaningless. The areas addressed by the OCC rule,
lending and deposit-taking, are fundamental to the business of
banking. If state and local laws can regulate these most basic
of national bank activities, and if States can examine national
banks, what is left of the national banking system? Simply put,
for a national banking system to exist, state and local
governments must not be able to impose material restrictions on
the fundamental banking activities of national banks.
Finally, much of the debate over the rule has been in the
context of the need to address the terrible problem of
predatory lending. There are two approaches to predatory
lending that we believe would work well, without undermining
the dual banking system. The first involves cooperation between
the OCC and state and local officials. State and local
governments should work with the OCC to identify any problems
and recommend changes in the regulation of national banks that
may be necessary to address those problems. The OCC has
indicated strong interest in this type of cooperation.
In addition, should state and local authorities find
specific situations in which national banks may be engaging in
unethical or illegal activities, they should forward this
information directly to the OCC for action. We are confident
that the OCC would take strong action and has the authority to
do so. Under this approach, state and local governments would
not try to regulate the fundamental activities of national
banks, and therefore the dual banking system would be
maintained.
A second approach, not inconsistent with the first, is the
passage of targeted Federal legislation to address predatory
lending. There are a number of areas where Congress has
determined that a Federal approach to a given consumer
protection issue is warranted. As noted earlier, this approach
was recently taken by this committee with respect to the Fair
Credit Reporting Act. We recommend that the Congress actively
consider proposals for a national approach to predatory
lending, such as that contained in the Responsible Lending Act
introduced by Congressman Ney and others.
Thank you for allowing us to testify this morning.
[The prepared statement of Edward L. Yingling can be found
on page 214 in the appendix.]
Chairwoman Kelly. I thank you, Mr. Yingling, for staying
within the time frame.
Mr. Taylor?
STATEMENT OF JOHN TAYLOR, PRESIDENT AND CEO, NATIONAL COMMUNITY
REINVESTMENT COALITION
Mr. Taylor. Good afternoon, Madam Chairwoman and
Representative Crowley and other Members of the committee.
Thank you for the opportunity to testify. My name is John
Taylor. I represent the National Community Reinvestment
Coalition, which is a coalition of some 600 community
organizations, local governments, and state-based institutions
whose essential common interest in NCRC is to work together to
promote fair and equal access to credit and prevent lending
discrimination.
I want to begin actually by answering a question that you
asked, Madam Chairwoman, as well as some of the others, I think
Representative Gutierrez and Representative Maloney, on how the
process went for the OCC in getting public comment and how they
listened to that comment both from Congress and from other
people. The question was asked, how many comments did they
receive and how did that break out. I am sorry that Ms.
Williams did not have those figures, but I happen to have those
for you. There were 2,100 comments received by the OCC on this
rule. Only 5 percent supported the position they took. I think
that is fairly significant in light of the questioning that you
had earlier.
Let me also say I am glad to hear that my friend and
colleague from the American Bankers Association had some quotes
from Abe Lincoln on his wall, but I would be pretty shocked if
President Lincoln were here that he would not indeed agree with
the States rights positions to be able to prevent unfair
lending practices on the State level, and also endorse a
national bill that made sure that lending discrimination, or
rather predatory lending, became a thing of the past.
Unfortunately, it has surged in recent years, and now more
than ever we do need these state anti-predatory lending laws,
indeed, one on a Federal level. We need more consumer
protections, not less, since the OCC has just boldly preempted
state anti-predatory lending laws in nearly 25 States. NCRC,
the National Community Reinvestment Coalition, recently issued
a report called The Broken Credit System. I believe we gave all
Members of the Banking Committee a copy of this report, and it
was widely covered in the Wall Street Journal and New York
Times, and many of the other major press. If anybody needs a
copy, we will make sure you get it.
The important thing to understand is that we have found
that predominately African American and elderly communities,
and I want to recognize my friends from the NAACP and AARP who
endorsed and supported our study, that showed that African
American and elderly consumers were in fact targets of the
subprime market, even when controlling for credit scores,
housing stock and income.
We actually did this study in 10 of the large metropolitan
areas including Atlanta, Baltimore, Cleveland, Detroit,
Houston, Los Angeles, Milwaukee, New York, St. Louis and
Washington, DC. After controlling for credit risk and housing
market conditions, we found an increased amount of high cost
subprime lending in elderly and minority neighborhoods. I can
give you some examples about that, but I am going to move ahead
to make sure I cover more substantive points in my testimony.
While price discrimination is insidious of itself, it is
often combined with abusive terms and conditions that compound
the evils of predatory lending. Overpriced loans with abusive
terms and conditions strip the equity out of borrowers's homes
and often lead to foreclosure. NCRC operates a Consumer Rescue
Fund initiative that has responded to numerous examples of
predatory lending. Under the initiative, NCRC arranges
affordable refinance loans for victims of predatory lending. I
have heard some examples from Members of Congress. There
probably is not a Member of Congress who has not heard from
more than one constituent about these kinds of practices. So I
am not going to bother to give you the examples because I think
you know them well.
It does destroy affordable housing initiatives and
community development initiatives, particularly in working poor
communities and predominantly minority communities, when
predatory lending and usurious subprime lending is able to be
the law of the land in those neighborhoods. Lest you think that
we are exaggerating about the impact of predatory lending in
those neighborhoods, let me give you one example of a case that
our rescue fund handled. It represented one neighborhood in New
York City. There were 400 families impacted and victimized by
predatory developers, appraisers, brokers and lenders.
When the OCC preempted state anti-predatory laws a couple
of weeks ago, 25 States suddenly lost their ability to protect
their citizens from equity stripping, massive foreclosures and
loss of wealth. By the way, the OCC is attempting to expand
this preemption, and this committee should know it, via the new
proposed CRA regulatory changes that were just announced where
they are attempting to have this sort of standard also
incorporated at the other agencies. I think this committee
ought to be aware of that. They are looking for partners, is
what I am suggesting.
The OCC preempts comprehensive state anti-predatory lending
law. Make no mistake about it. The OCC's regulation States that
a national bank shall not make a loan predominantly on the
foreclosure value of a borrower's collateral without regard to
the borrower's repayment ability. The rule further prohibits
national banks from engaging in practices that are unfair and
deceptive under the Fair Trade Commission Act. So essentially,
they say don't break the law, the Fair Trade Act, and do not
predominantly make your decision based on foreclosure. So you
can sort of still loan against the foreclosure value, but it
should not be the predominant factor. By the way, in terms of
when the OCC assesses them and regulates them, there has to be
a pattern and practice of this. So you can do this some of the
time and it can be part of your decision, so the OCC's
regulation is not quite hard and fast.
Let me say, that red button unless you inadvertently
clicked on it, means my time is up. So I will close by
suggesting that the key thing to understand here is that the
OCC regulation does not explicitly prohibit many things that in
fact are predatory practices, including loan flipping, lack of
income verification, single premium credit insurance, steep
prepayment penalties, fee packing, high balloon payments, and
other forms of practices that are in fact quite clearly
predatory lending practices. None of that is covered except by
State law, and it gets preempted by this rule.
I would suggest to you, too, that the notion that the OCC
banks do not participate in this kind of activity, when they do
about 4.2 million mortgage loans per year, that is, the
institutions they regulate are about 28 or 29 percent of the
entire loans in this country is absurd. We need to look at what
those banks are doing in purchasing those loans and what their
activities are, and do not assume that they are not a part of
the practice.
I will conclude by saying that I agree with my colleague
from the ABA and some of the Members on both sides of the aisle
who have said that it is high time for a national standard, but
only one that is as good as the strongest state standard, so
that the way we deal with this problem and create parity and
fairness across the land is to create a strong comprehensive
anti-predatory lending legislation that drives all these
usurious, unscrupulous kind of lenders out of the business.
Thank you very much.
[The prepared statement of John Taylor can be found on page
167 in the appendix.]
Chairwoman Kelly. Thank you, Mr. Taylor. You have
accomplished something very few people in front of my
committees do. You have managed three endings, and that is
okay. You did run over your time. I want to ask you one
question here. That report is something of interest. I read
pieces in your testimony from the report. Would you like to
make that report a part of the record for this hearing? Or
would you rather it just be available to our staffs? I think
that is something that our staffs probably should have, if they
do not have already.
Mr. Taylor. I would like to make that as part of the
congressional record, Madam Chairwoman, as well as our
Statement to the OCC, along with Members of Congress and 2,100
others who wrote to them about this proposed rule.
Chairwoman Kelly. Then the NCRC report and its statement to
the OCC will become a part of the record. So moved. Thank you
for your testimony.
[The following information can be found on page 290 and 347
in the appendix.]
Mr. Taylor. Thank you.
Chairwoman Kelly. Ms. Thomas?
STATEMENT OF KAREN THOMAS, DIRECTOR OF REGULATORY AFFAIRS,
INDEPENDENT COMMUNITY BANKERS OF AMERICA
Ms. Thomas. Good afternoon, Madam Chairwoman, Ranking
Member Gutierrez and Members of the committee. I am Karen
Thomas, Director of Regulatory Affairs and senior regulatory
counsel for the Independent Community Bankers of America. I am
pleased to share with you ICBA's views on the OCC preemption
rule.
When first proposed, OCC's preemption and visitorial powers
rules engendered heated controversy and debate, pro and con.
With issuance of the final preemption rule earlier this month,
the controversy over the rules remains. Strong views and
feelings have been expressed on both sides as to the legitimacy
and appropriateness of the rule.
In general, as expressed in our comment letter on the rule,
the ICBA believes it would have been preferable for the OCC to
continue to analyze how individual State laws impact national
banks and make preemption determinations on a case-by-case
basis, rather than adopt a broad, general preemption
regulation. In our judgment, the importance of the Federal-
state relationship mandates than whenever preemption is
undertaken, it should be carefully considered in the context of
an individual statute. Each case should be evaluated on its own
particular merits.
Overall, we are concerned that the scope of the OCC rule
may not maintain the creative balance that characterizes our
unique dual banking system. The issue is, does the OCC rule go
too far? It may have, but for us it is not a clear-cut case.
Our position is taken in the context of the increasing concern
that community bankers have expressed about the growing trend
among state legislatures to pass aggressive consumer protection
measures that, although well intended, increase banks's
regulatory burden and have negative unintended consequences for
bank customers.
Consequently, ICBA has strongly supported on a number of
occasions Federal preemption of State laws. For example, we
have supported preemption of State laws such as the Georgia
anti-predatory lending statute, laws banning ATM fees, and
insurance sales laws that restrict how banks can sell
insurance.
The OCC notes it adopted the rules to assist national banks
and their customers because overlaying state and local
requirements on top of the Federal standards that already apply
imposes excessively costly and unnecessary regulatory burden.
This statement resonates well with community bankers facing an
ever-growing mountain of regulation.
To illustrate, secondary market investors stopped buying
loans originated in Georgia because they were not willing to
take the risk that they might purchase a loan considered
predatory. Liquidity dried up as secondary market lending
slowed significantly. Once the OCC preempted the law for
national banks, a hard-fought for parity clause in the Georgia
law meant that state-chartered banks were also exempt. Without
preemption, Georgia consumers could have been seriously
disadvantaged in their ability to secure mortgage loans.
Consumers deserve accurate information about financial
products and services and protection from unscrupulous
providers and unfair or misleading practices. To analyze
whether consumers are adequately protected under the OCC rule,
several considerations must be kept in mind. First, the rule
expressly affirms that national banks must treat all customers
fairly and shall not engage in unfair or deceptive practices as
defined under the Federal Trade Commission Act. The OCC has
previously taken actions against national banks for unfair and
deceptive practices, and affirms it will continue to do so.
Second, the new rule's anti-predatory lending standard is
intended to prevent national banks from making a consumer loan
where repayment is unlikely and would result in the lender
seizing the collateral. Finally, national banks are subject to
a broad panoply of consumer protection statutes enacted by
Congress, including Truth in Lending, RESPA, ECOA, HMDA, Truth
in Savings and many others. Federal bank regulators ensure
compliance with these requirements through regular rigorous
examination and supervision.
The dual banking system has served our nation well for more
than 100 years. While the lines of distinction between state
and Federally chartered banks have blurred greatly, community
bankers continue to value the productive tension between state
and Federal regulators. However, many community bankers view
one set of rules issued by one Federal bank regulator as an
undue concentration of power. We do not know whether the OCC's
preemption rule will disturb the balance of the dual banking
system by giving national banks too much advantage over state-
chartered banks. But OCC preemption of State laws is only one
side of the coin. The other is state action that impinges on
the powers of national banks or undermines appropriate Federal
supervision and regulation. For example, as Chairman Greenspan
has warned, state-chartered industrial loan companies have the
potential to undermine holding company supervision and
regulation, while breaching further the separation of banking
and commerce.
The principle of Federal preemption is a long and well-
established one, but where the lines should be drawn continues
to be debated. Preemption is a complex subject requiring a
balancing of interests. While many community banks support some
preemption, many are also uncomfortable with a policy of
blanket preemption. A broad preemption regulation will not
eliminate challenges to the OCC's authority, as we have already
seen. The ICBA is concerned that a broad preemption may have
unintended and unforeseen consequences. We would prefer an
analysis of the unique elements of a particular State law
before a decision to preempt is made.
Thank you. I would be pleased to answer any questions.
[The prepared statement of Karen M. Thomas can be found on
page 181 in the appendix.]
Chairwoman Kelly. Thank you, Ms. Thomas.
Mr. Belew?
STATEMENT OF JOE BELEW, PRESIDENT, CONSUMER BANKERS'
ASSOCIATION
Mr. Belew. Thank you, Madam Chairwoman. Thank you very much
for convening these hearings. My name is Joe Belew. I am
President of the Consumer Bankers Association. I will also keep
my remarks brief.
As indicated in my written testimony, CBA strongly supports
the OCC in its recent rulemaking efforts to clarify the extent
of its authority over national banks and their subsidiaries.
Its actions are in accord with the letter and the spirit of the
National Bank Act, as that law has been consistently
interpreted by over a century of court opinions.
The rules were issued against a backdrop of stringent OCC
examinations on a very broad sweep of Federal consumer
protection laws, as well as safety and soundness laws. We would
call the committee's attention to the list we provided of these
Federal statutes. They cover virtually every imaginable area of
consumer protection. Further, the OCC has been forceful in its
enforcement of these laws. National banks do strive to be the
gold standard in their dealings with the public. The OCC is
swift and sure in those rare instances where it discovers
wrongdoing.
The OCC's tough approach is not new. As far back as June of
2000, Counsel Julie Williams put the industry on notice at a
CBA conference that the agency would use all its powers to
anticipate and address any predatory lending concerns.
As we note in our testimony, our members, which are
predominantly national banks, are also going beyond the
requirements of the law and promoting financial literacy
programs. This is important since we have injected predatory
lending into this debate. For 3 years, we have surveyed our
member banks to determine how involved they are in financial
literacy efforts, as a measure of their sense of responsibility
to the communities they serve. The most recent survey showed
that 98 percent of the respondents sponsor financial literacy
programs or partner with others.
Tough enforcement by the OCC, coupled with our industry's
financial literacy efforts and a widespread understanding,
which has been noted several times this morning, that problems
are seldom being caused by national banks, they are not the
majority cause, lead us to support the OCC rules as sound
public policy.
To be sure, there is another reason, and that is banks'
needs for predictability and uniformity across multiple States
of operation. CBA's members, generally the country's larger
financial institutions, typically operate in multiple States.
Some are in over half the States of the Union, and many operate
literally thousands of branches and have millions of customers.
Increasingly in recent years, national banks have been facing
the intrusion of state and local statutes and regulations.
There was a need for clarity, greater uniformity, and
predictability. These regulations will prove helpful.
Thank you very much for the opportunity to appear today.
[The prepared statement of Joe Belew can be found on page
58 in the appendix.]
Chairwoman Kelly. Thank you, Mr. Belew.
Mr. Hammond?
STATEMENT OF LEE HAMMOND, BOARD MEMBER, AARP
Mr. Hammond. Good afternoon, Madam Chairwoman and Ranking
Member Gutierrez and Members of the subcommittee. My name is
Lee Hammond. I am a member of AARP's board of directors.
I appreciate the opportunity to offer AARP's assessment of
the Office of the Comptroller of Currency's recent action to
preempt the application of State laws to national banks and
their operating subsidiaries. Chairman Kelly, I also appreciate
your including our written testimony in the record of the
hearing.
While the recent rulemaking by OCC broadly preempts State
laws affecting virtually all aspects of national bank and
operating subsidiary activities, my testimony is focused on the
OCC rule's impact on State laws and enforcement actions
designed to stop predatory mortgage lending. The number of
victims of predatory mortgage lending, many of whom have come
to AARP for assistance, continues to grow.
In 1998 and 2000, HUD, the Federal Reserve Board and the
Treasury Department issued reports defining predatory lending,
chronicling its established patterns and its growth. We are
very concerned that the OCC has both exceeded its authority
under the National Bank Act and has minimized the breadth of
the problem of predatory lending rule in its new rule.
We believe the OCC is attempting to substitute a single
substantive regulatory provision for the broad range of
consumer protections that currently exist under state anti-
predatory mortgage lending and unfair deceptive acts and
practices law, the latter referred to as the UDAP laws. Victims
of misrepresentation, deception, fraud and unconscionable
practices may be denied redress against the perpetrators of
these offenses, if the perpetrators are national banks or their
operating subsidiaries.
AARP is particularly concerned about the OCC's decision to
extend the preemption of State laws to operating subsidiaries
of national banks. Our view is that national banking laws do
not afford unrestricted preemption of state authority over
activities of national banks or their operating subsidiaries.
In part, we base our views on state predatory lending laws that
are authorized by the Federally enacted Homeownership and
Equity Protection Act, referred to as HOEPA. HOEPA establishes
a category of high-cost real estate loans and restricts the
activities of mortgage lenders in connection with those loans.
Confronted with the growing complaints about abusive
lending practices against their citizens, and with homeowners
losing their homes to foreclosure, state legislatures and
regulatory bodies seized upon the authority granted them by
Congress under HOEPA to expand their consumer protections. Our
view is that Congress, by enacting HOEPA, has made it clear
that HOEPA and State laws modeled on HOEPA legitimately
restrict the activities of any high-cost lender. We believe
this includes national banks and their operating subsidiaries.
AARP supports stronger Federal legislation to stem the tide
of predatory mortgage lending. We also support State laws and
regulations designed to avoid preemption problems by avoiding
rate and fee setting, and by using HOEPA as a legislative
model. AARP submits that OCC's broad preemption is not merely
unauthorized, but that it undermines the Federalism principles
to the deterrent of the public interest.
Beyond this, we believe that OCC's preemption action
deprives the judiciary of the visitorial powers to regulate and
supervise granted to it by Congress. We believe that under the
new OCC rules, state authority to sue national banks to enforce
state banking laws, including consumer protection laws, would
effectively be eliminated. It leaves regulation of a large
segment of the mortgage market to the limited enforcement
resources of the OCC. In addition, the OCC's rules weaken state
authority to enforce those few laws that the OCC does not
preempt, thus enabling national banks to avoid those laws as
well.
The breadth of the OCC's preemption remains to be tested in
litigation, but the harshest impact will likely be felt by
those with the greatest need for State law protection,
homeowners facing foreclosure. The OCC has likely deprived
homeowners of the ability to raise State law defenses to
foreclosure when the mortgage is originated on a national bank
or one of its operating subsidiaries.
AARP believes the activity of these entities must be
subject to examination regulation by the States and to state-
created private rights of action to provide redress to their
consumers. We appreciate the purpose served by this hearing in
raising congressional and public attention regarding the risks
to consumer protections posed by the OCC rules.
I will conclude by making two summary points. First, we
believe that the OCC is undermining state efforts to protect
consumers, and thereby taking action that is harmful to the
public interest. Second, we believe that prompt and decisive
congressional action is necessary to curb the OCC's exercise of
powers that far exceed those delegated to it.
I would be happy to answer any questions you may have.
[The prepared statement of W. Lee Hammond can be found on
page 73 in the appendix.]
Chairwoman Kelly. Thank you, Mr. Hammond.
Mr. Shelton?
STATEMENT OF HILARY SHELTON, DIRECTOR, WASHINGTON BUREAU OF THE
NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE
Mr. Shelton. Thank you, Chairwoman Kelly, Congressman
Frank, Congressman Gutierrez and all the Members of the full
committee and subcommittee, for inviting me here today. I
appreciate the opportunity to provide you with the views of the
NAACP on this very important matter.
My name is Hilary Shelton and I am the Director of the
Washington bureau of the NAACP. The Washington bureau is the
Federal public policy arm of our nation's oldest, largest and
most widely recognized grassroots civil rights organization.
With more than 2,200 membership units in every state in our
nation, the NAACP knows that predatory lending, which is
rampant in our communities, hurts individuals, destroys
neighborhoods and poses a real risk to our nation's future.
Let me begin by saying that the NAACP is strongly opposed
to the new regulations issued by the Office of the Comptroller
of the Currency, as they will clearly eviscerate the limited
protections that we currently have in place in a few States to
address the scourge of predatory lending. Furthermore, as put
forth by the OCC, the new regulation will in fact exacerbate a
broken financial system which results in prolonged poverty and
the targeting of individuals and neighborhoods because of their
racial and ethnic makeup.
Predatory lending is clearly a major civil rights issue. As
several studies have shown, predatory lenders prey on African
Americans and other racial and ethnic minorities in vastly
disproportionate numbers. Two important reports from 2002 show
that ``African Americans were 4.4 times more like to receive a
subprime loan and Latinos were 2.2 times more likely to do so
than their white counterparts,'' and that ``the disparity in
subprime loans between whites and African Americans and other
minorities actually grows at an upper-income level and is
greater to higher income African American homeowners than are
lower income white homeowners.''
Another more recent study from the National Community
Reinvestment Coalition shows that the trends identified have
not abated, and that, ``discrimination is widespread in
America. African American and predominantly elderly communities
receive a considerably high level of low-cost subprime loans
than is justified based on the credit risk of neighborhood
residents.''
All of these studies bear out a fact that the NAACP has
known for years through our grassroots effort at increasing
homeownership in our communities and through personal
experiences. African Americans are disproportionately targeted
by predatory lenders for subprime loans, and the results are
incredibly destructive. The problem appears to be getting
worse. It is because of the disparate and frankly injurious
manner in which some financial institutions continue to deal
with African American communities that the NAACP has at the
national, state and local levels pushed for stronger anti-
predatory lending laws.
In the interest of time, Madam Chairwoman, I am asking that
two recent NAACP national resolutions dealing with predatory
lending, which were included in my written testimony, be
inserted into the record.
[The following information can be found on page 140 and 143
in the appendix.]
Chairwoman Kelly. So moved.
Mr. Shelton. Thank you very much. I would call special
attention to the resolution passed in February of last year
which specifically States the NAACP's opposition to Federal
preemption of State laws.
So why is the NAACP so opposed to the Federal preemption of
State laws and specifically to the OCC's recent actions? Put
simply, by preempting state and local anti-discriminatory
lending laws, the OCC is effectively doing away with the all-
too-few protections we have been able to put in place to
address the scourge of predatory lending. The only way we can
truly put a dent in the problems that result from predatory
lending is to change the mortgage lending marketplace, so as to
make predatory loans too risky, too expensive for lenders, and
no longer good financial investments. We must take away the
monetary incentives to make predatory loans.
It is true that historically national banks have been less
likely to perpetuate predatory lending practices. This does not
mean, however, that national banks and their subsidiaries do
not participate in or profit from predatory lending. On the
contrary, there are numerous cases in which national banks,
their operating subsidiaries and their affiliates have clearly
profited from predatory lending.
National banks, their subsidiaries and their affiliates
profit from predatory lending practices in numerous ways,
including making direct loans, buying predatory loans from
brokers, investing in loan portfolios that contain predatory
loans, and providing securitization services for trusts which
contain predatory loans.
Because the Federal government has frankly done little to
make it less profitable for banks to engage in predatory
lending, or at least supporting predatory lending, several
States have stepped in to protect their citizens. I must point
out that all of these statutes were enacted only after
research, intensive debate and negotiations, and many were made
with local economic conditions and concerns in mind. Yet the
OCC is exempting national banks and their subsidiaries from
these protections, without offering any real alternative
protections from predatory lending.
While the regulations, as we understand it, do offer a few
protections, they are incredibly weak and will clearly not even
begin to be as effective against predatory lending as many of
the State laws, including those in North Carolina, Georgia, New
Jersey and New York, to name just a few.
Furthermore, the list of State laws that will be preempted
by this new regulation is long and, in many cases, very vague.
When closely scrutinized, it is clear that under the new
regulation, the OCC intends to preempt national banks and their
operating subsidiaries from hundreds and particularly thousands
of consumer protections and anti-predatory lending laws. This
means that instead of all 50 state attorneys general, all 50
State offices of consumer protection, and all the private
attorneys who are bringing suits against banks under State
laws, enforcement of very vital and necessary consumer
protections and anti-predatory lending laws will be left up to
the OCC's consumer advisory group, an office of 22 people
located in Texas.
Thus, 22 people located in one office in one city in one
state will be responsible for monitoring and enforcing against
the predatory lending actions of thousands of financial
institutions across the nation. The exact number of financial
institutions of which these 22 individuals will be responsible
is unclear. Suffice it to say, however, that according to the
OCC, there are 2,100 national banks, and one of the largest,
Wells Fargo, has 76 operating subsidiaries that engaged in
consumer mortgage lending in May of 2002, the most recent data
that we have available to us now.
In other words, rather than a multitude of regulators and
watch dogs located throughout the nation in our communities
monitoring the behavior of national banks and their
subsidiaries, enforcement of anti-predatory lending laws will
be left to a few individuals.
Thus, not only does the NAACP decry the evisceration of
many of the State laws that are protecting our members and our
communities from predatory lending, but we are also extremely
troubled by the practical impact of this new regulation. The
few laws that are left that protect us will, frankly, not be
enforceable.
Predatory lending has ruined individual lives and
communities and represents a real threat to our nation's
continued economic well-being. As a result of predatory
lending, millions of Americans across our nation have lost
their homes and their primary source of savings. We should be
taking more proactive steps to address this problem, and
expanding on the initiatives advanced by the State laws, not
exempting a whole class of financial institutions from state
regulations that protect individual consumers.
As I said in the beginning of my testimony, predatory
lending is clearly a civil rights issue, given the egregious
way in which racial and ethnic minorities are targeted by some
financial institutions for predatory loans.
Chairwoman Kelly. Mr. Shelton, could you please summarize
it?
Mr. Shelton. In summation, by putting these regulations in
place, the OCC is setting a precedent to allow some national
banks to continue to target racial and ethnic minorities and
the elderly for their own monetary gain. This is contrary to
the long-held view of the NAACP that the primary responsibility
of government is to protect its citizens, all of its citizens,
and not to exploit them in the gains of a few.
[The prepared statement of Hilary O. Shelton can be found
on page 136 in the appendix.]
Chairwoman Kelly. Thank you very much.
I want to say that I applaud the efforts of you, Mr.
Shelton and the NAACP; you, Mr. Hamilton and the AARP; and you,
Mr. Belew, for reaching out and attempting to create some
financial literacy on the part of your members. It is extremely
important that people gain financial literacy, probably at an
early age, because some of this predatory lending can be
stopped if people only understand and can see clearly what it
is that they are being charged.
If you graduate from high school and you cannot do
percentages and you cannot figure out fractions, then you are
not going to be able to understand if you get a housing loan.
It is a serious problem and I really congratulate your three
organizations for what you have done. I know that the ABA has
done a lot of very good outreach in trying to educate people
just on their own, and I know there are many other
institutions, but you happen to be the people that are here in
front of me today, and I do congratulate you for doing that
kind of outreach.
I am going to ask really just one question. Comptroller
Hawke asserted, and again said something to me on the telephone
in our telephone conversation, that in terms of predatory
lending that it is not the national banks that are the problem,
but it is the unregulated institutions that are not impacted by
these rules. I am wondering if you think Congress should
consider legislation that is broader in scope, to try to
address that kind of concern. You can just answer this, if you
will, just with a yes or no response. Let's start with you, Mr.
Shelton.
Mr. Shelton. Yes, absolutely. As our banking institutions
become much more complex, certainly broader, more protective
policies need to be put in place for our consumers.
Chairwoman Kelly. Mr. Hammond?
Mr. Hammond. Madam Chairwoman, I am not sure I understood
your question exactly.
Chairwoman Kelly. The question is that in terms of the
predatory lending, it is really not the national banks that are
a problem, but there are unregulated institutions out there
that are not impacted by either the OCC rules or by some of the
State rules. The questions now is do you think there should be
a Federal effort to consider legislation that is broader than
the OCC has actually done here to address these unregulated
institutions.
Mr. Hammond. I guess in answer to your question, there are
two parts. First of all, I am not sure that the first premise
is exactly correct, that no national banks have been involved
in any of this.
Chairwoman Kelly. I am basing this on what the Comptroller
of the Currency said.
Mr. Hammond. Secondly, I think AARP has always considered
that there should be a strong floor of Federal legislation on
consumer protections, so we would support that certainly, but
only a floor.
Chairwoman Kelly. Okay, thank you.
Mr. Belew?
Mr. Belew. Ms. Kelly, it is difficult to say yes or no to
that, and let me tell you why. I know around our tables we have
debated this endlessly because it is a scourge of the land. It
should not be out there. It is very difficult, as we have seen
in these various States, to concretely define exactly what you
are going to prohibit. You might say flipping is bad, but then
are you going to prohibit refis? I do not think the middle
class would like that very much.
So my answer is, I understand that there will be some
discussion. We have already had it from the Members today. We
would like to be part of that discussion. I would simply urge
caution that we not repeat on the Federal level the
``catastrophe'', my words, that happened in various States,
because I do think harm was done to consumers when credit dried
up.
Chairwoman Kelly. Thank you.
Ms. Thomas?
Ms. Thomas. Yes, Madam Chairwoman, I think one point that
needs to be made is that a lot of these lenders--it is not that
they are not regulated, it is that they are not supervised or
examined. They are subject to all the Federal laws that govern
lending and protect consumers, but it may be difficult to find
the resources to enforce those laws against those lenders. I
think that needs to be one of the first steps, is to address
better enforcement against those actors.
Chairwoman Kelly. Thank you.
Mr. Taylor?
Mr. Taylor. The short answer is yes. I disagree. They are
not all regulated, subjected to the same Federal laws. Large
national credit unions, private mortgage companies have no CRA
obligation. They do not have any obligation to serve working
class Americans. I think it is time to level the playing field
with banks to bring those people into the equation and expand
CRA. I know there have been a couple of bills in Congress
recently to consider that.
The other thing, I would not accept the supposition that
national banks are not part of the problem. You heard Ms.
Williams note that they did a settlement recently in California
with, I think, Providian Bank, in which they found some what
would clearly be predatory lending practices. It was not the
only institution they found. Furthermore, a number of the
national banks are involved in purchasing these loans so they
enable people who do the predatory lending loans by buying them
and putting them on their books. That would be my answer.
Chairwoman Kelly. Thank you.
Mr. Yingling?
Mr. Yingling. Yes.
Chairwoman Kelly. That was a short answer. Your answer is
yes.
[Laughter.]
Well, I hope that the ABA will be interested in working
with us, Mr. Taylor, Mr. Thomas and all of your groups. I hope
that you will work with us if we consider legislation in that
regard.
Mr. Hammond, did you have something further you wanted to
say?
Mr. Hammond. Yes, ma'am, just a point of clarification. Did
I understand you correctly at the beginning when you said that
all written testimony would be included as a matter of record
of this hearing?
Chairwoman Kelly. Yes, you did.
Mr. Hammond. Thank you.
Chairwoman Kelly. All written testimony will be a part of
the record. We have made a lot of other things part of this
record. This is an important hearing and I think that its
purpose is well-served by the testimony of all of you here
today.
The Chair notes that some Members will have additional
questions. I certainly do. This panel will get those questions
in writing, and the other Members may wish to submit their
questions in writing. So without objection, the hearing record
will remain open for 30 days for Members to submit written
questions to the witnesses and to place the witnesses's
responses in the record.
With that, I thank you very much for your time, your
patience, and I appreciate your appearing before us today.
This hearing is adjourned.
[Whereupon, at 12:57 p.m., the subcommittee was adjourned.]
A P P E N D I X
January 28, 2004
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