[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



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                            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.]


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