[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                     OVERSIGHT OF THE OFFICE OF THE
                      COMPTROLLER OF THE CURRENCY:
                        EXAMINATION OF POLICIES,
                        PROCEDURES AND RESOURCES

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 1, 2004

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-78


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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              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 1, 2004................................................     1
Appendix:
    April 1, 2004................................................    51

                               WITNESSES
                        Thursday, April 1, 2004

Hawke, Hon. John D. Jr., Comptroller of the Currency.............    10

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    52
    Emanuel, Hon. Rahm...........................................    54
    Gutierrez, Hon. Luis V.......................................    55
    Israel, Hon. Steve...........................................    57
    King, Hon. Peter T...........................................    58
    Hawke, Hon. John D. Jr. (with attachment)....................    60

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    ``Friendly Watchdog'' article, Wall Street Journal, January 
      28, 2002...................................................    87
Scott, Hon. David:
    Letters to Hon. John D. Hawke Jr. from Georgia Department of 
      Banking and Finance, August 21, 2003, March 9, 2004........    91
Hawke, Hon. John D. Jr.:
    Written response to questions from Hon. Spencer Bachus.......    96
    Written response to questions from Hon. Scott Garrett........   101
    Written response to questions from Hon. Sue W. Kelly.........   101
    Written response to questions from Hon. Brad Miller..........   107
    Written response to questions from Hon. Tim Murphy...........   120
    Written response to questions from Hon. Barbara Lee..........   115
    Written response to questions from Hon. Maxine Waters........   102

 
                     OVERSIGHT OF THE OFFICE OF THE
                      COMPTROLLER OF THE CURRENCY:
                        EXAMINATION OF POLICIES,
                        PROCEDURES AND RESOURCES

                              ----------                              


                        Thursday, April 1, 2004

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:18 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael Oxley 
[chairman of the Committee] presiding.
    Present: Representatives Oxley, Leach, Bachus, Kelly, Paul, 
Gillmor, Ose, Green, Feeney, Hensarling, Garrett, Murphy, 
Frank, Waters, Maloney, Gutierrez, Velazquez, Watt, Ackerman, 
Carson, Sherman, Lee, Inslee, Moore, Lucas of Kentucky, 
Crowley, Clay, Israel, Miller, Emanuel, Scott and Bell.
    The Chairman. [Presiding.] The committee will come to 
order.
    The committee meets today for the latest in a series of 
oversight hearings we have planned for this year on the Federal 
agencies under the Committee's jurisdiction. Last month, the 
Oversight and Investigations Subcommittee, under Mrs. Kelly's 
leadership, held a hearing on the operations of the Federal 
Deposit Insurance Corporation. Today, we turn our attention to 
the Office of the Comptroller of the Currency, the independent 
agency within the Treasury Department that charters, supervises 
and regulates the more than 2,000 institutions that make up the 
national banking system.
    We are pleased to have back before the Committee the 
Honorable Jerry Hawke, who has recently returned from a brief 
medical leave to resume his duties as the Comptroller of the 
Currency. Comptroller Hawke, we welcome you back, and we wish 
you a continued speedy recovery, and from the looks of things, 
you are doing quite well.
    In addition to reviewing the operations and regulatory 
policies of the OCC, today's hearing provides an opportunity to 
take stock of the health of the national banking system. Last 
week, the OCC released its report on the condition of national 
banks in the fourth quarter of last year, reflecting net income 
21 percent higher than for the same period a year ago, markedly 
improved credit quality and record numbers for both return on 
equity and return on assets.
    Even with all of the shocks that our economy has undergone 
over the past 4 years--beginning with the bursting of the tech 
bubble in 2000 and continuing through 9-11 and the scandals in 
corporate America--the fundamentals of the U.S. banking system 
appear to have never been stronger. This surely bodes well for 
the sustainability of the economic recovery that has begun to 
take hold in recent quarters, as banks with sound balance 
sheets are well-positioned to make the kinds of loans to 
creditworthy borrowers that can help to fuel growth and create 
jobs.
    One by-product of the record profitability that the banking 
industry has enjoyed in recent years has been an increase in 
merger activity among some of the country's largest 
institutions, including, within the past 6 months, three 
supervised by the OCC: Bank of America, Fleet and Bank One. 
While the trend toward consolidation in the financial services 
industry is not a new phenomenon by any means, these most 
recent mergers nevertheless raise important issues regarding 
the future structure of the banking industry.
    As the primary Federal regulator for the Nation's largest 
and most complex banking organizations, the OCC faces a 
particular challenge in maintaining an examination force with 
the technical expertise necessary to ensure that these 
institutions are operated safely and soundly while continuing 
to meet the needs of the communities they serve.
    Since its inception 140 years ago, the national banking 
system has offered banks that operate on a multi-state or 
nationwide basis the ability to do so under unified Federal 
supervision, and pursuant to one set of rules established at 
the national level. This fundamental principle, which has been 
reaffirmed in numerous Supreme Court opinions, has come under 
fire in recent months from opponents of regulations issued in 
final form by the OCC in February that seek to codify the 
supremacy of Federal law as applied to national banks.
    As a State legislator for 9 years before coming to 
Congress, I do not dismiss lightly the claims by State banking 
commissioners and others that the OCC regulations undermine the 
dual chartering regime that has been a hallmark of the U.S. 
banking system since Civil War days. However, I simply cannot 
agree with my friends in the States that subjecting national 
banks to a patchwork of inconsistent standards set by State 
legislatures and local municipalities is either required by the 
dual banking system or in the best interests of the customers 
of those institutions.
    In January of this year, Mrs. Kelly's subcommittee held the 
first congressional hearing on the OCC's preemption 
regulations. The hearing was a fair and balanced look at this 
complex issue, at which the OCC and its critics were both 
afforded opportunities to state and defend their positions. 
Since then, the OCC has taken several constructive steps to 
address legitimate concerns expressed by members and witnesses 
at that hearing. On March 1st, the OCC issued guidance to 
national banks stating the OCC's expectation that when national 
banks or their operating subsidiaries receive customer 
complaints forwarded by State authorities, they must take 
appropriate measures to resolve those complaints fairly and 
expeditiously.
    Then last week, the OCC published a proposed rule that, 
once fully implemented, will result in a full listing of all 
national bank operating subsidiaries being available to the 
public over the Internet to facilitate the processing of 
consumer complaints against such entities. I applaud the OCC 
for taking these important steps, and I encourage the agency to 
continue to reach out to its State counterparts to address 
areas of common concern.
    Before I conclude my remarks, let me say a few words about 
Basel. This committee remains extremely concerned about the 
potential competitive impact that the Basel proposals might 
have on the U.S. banking system and about the continued lack of 
consensus among Federal banking regulators regarding the merits 
of the proposal. I will be particularly interested in hearing 
Comptroller Hawke's views on studies released recently by other 
Federal banking agencies addressing both the competitive issue 
and the potential effect of the new Basel framework on the 
prompt corrective action regime that applies to U.S. banks.
    With that, I now recognize the gentleman from 
Massachusetts, Mr. Frank.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 52 in the appendix.]
    Mr. Frank. Mr. Chairman, I want to begin by expressing my 
full agreement with your last comment and indeed to thank the 
Comptroller for the work he is done with regard to the Basel 
agreement. We had our attention called to it, as you know, some 
time ago and confronted a situation which we thought was 
unbalanced and in which the full range of regulatory opinion 
wasn't being represented, and some legitimate concerns were not 
getting put forward. So I share your continued concerns about 
Basel, and I want to begin by saying in this case I think the 
Comptroller as well as the FJC have played a very useful role 
in giving us a chance to fully understand the implications of 
what was being proposed.
    Now, no more Mr. Nice Guy. But I did welcome the chance to 
join you in that, because I want to make it very clear that 
what we are talking about here on the preemption issue are very 
profound differences of a policy and indeed even a 
philosophical nature. And they are not personal. I don't have 
any criticism; indeed, quite the contrary. I think the 
Comptroller has done an excellent job, and we are glad to see 
him back here in good health. But there are profound 
differences.
    We had a hearing yesterday in this committee room in the 
Subcommittee on Capital Markets on proposals to basically 
reverse 60 years of American history in which insurance was 
essentially a State-regulated matter, and the degree of Federal 
takeover and Federal influence and Federal preemption was on 
the table. Today, we talk about an increase in power by the 
Federal Government over bank regulation, both in terms of the 
impact it has on national banks and in terms of the approach of 
the Comptroller's Office to try to increase the number of banks 
that are nationally chartered, partly induced by this 
particular set rules.
    Last year, we passed, overwhelmingly, a set of rules which 
continued the preemption of the States on credit. Now, as we 
deal with these issue by issue, I think, Mr. Chairman, the time 
has come for us to begin to acknowledge what we are talking 
about. And the question is this: To what extent are the States 
at all economically relevant? An argument can be made that they 
are very diminished relevance.
    And we talk about globalization and obviously 
nationalization is a small piece of globalization. The greater 
includes the less here. But what we have got--this is not a 
matter of making partisan points about who is for States' 
rights or not--there does appear to be a significant shift in 
opinion, certainly on the majority side, shared to some extent 
on our side in various centers of opinion, that the time has 
come significantly to diminish the role of the States in 
economic regulation. Now, that is something we shouldn't just 
be dealing with piece by piece; we have to confront it.
    Part of the problem is, and this is where it gets trickier 
in particular, the States have traditionally taken a lead role 
in the consumer protection area. And I forgot to add as I talk 
about this concern about the diminishing role of the States, we 
had a prolonged debate in this committee about whether or not 
we should increase the role of the Federal Securities and 
Exchange Commission and diminish the role of State regulators 
in the securities area. We ultimately resolved that, Mr. 
Chairman. I thought you played a very useful role in that. We 
resolved it, but I think it is a very reasonable way by 
directing the SEC and urging the States to talk about 
coordination.
    But there is a pattern here: Securities regulation, 
insurance, the granting of credit. Now, we are talking about 
national banks, particularly predatory lending and other 
consumer roles. In every case, we are talking about a 
significant shift from State to Federal power, and it ought not 
to be done piece by piece; we need to really look at it. This 
committee is best positioned to do that.
    Now as to the specifics here. I really want to urge my 
friends in the banking community to reconsider the notion that 
the way to deal with this complex set of issues is by 
regulatory action alone. This is not a technical matter, and it 
is not a matter of whether or not the law allows it. That is to 
be ordered in court, and we are not a court. We decide what the 
law should be, not what the law is. The implications of this 
are far-reaching. The Comptroller has said, ``Well, this is 
just the way the law always was.'' I must say that I am 
unpersuaded that every Attorney General and every bank 
commissioner misunderstood the law previously, because it is 
the unanimous opinion of every Attorney General and every bank 
commissioner that this represents change. Change isn't 
necessarily bad, but I don't think it serves us in dealing with 
important philosophical and economic and policy issue to act as 
if it really isn't an issue at all.
    And I want to say to my friends in the banking community, I 
understand that you would like to deal with this. To some 
extent I must say I get a little bit of the Thomas a' Beckett 
emanation from my friends in the financial community, ``Will 
nobody rid me of this meddlesome priest?'' The meddlesome 
priest being the States, and they swat him over here in credit 
and swat him in insurance. Well, be careful, that didn't work 
out so well for King Henry. Don't get yourself--is that the 
right king? Don't get yourselves in the same kind of position. 
I will ask to revise and extend if I got the king wrong.
    And I would just ask for one more minute, Mr. Chairman, if 
I might, just to say because this is such a thoroughly 
important issue, let's use a different model. Last year, many 
of the people in this room, both on our side and in the 
audience, consumers and members of the industry and regulators 
collaborated on a bill which extended Federal preemption in the 
extension of credit in a way that reached pretty good 
consensus. Our friends from California were understandably 
concerned because California had been in advance here and to my 
regret we weren't able to protect California's decision as much 
as I would like, but for virtually everybody else in the 
country we preserved the function that credit plays in the 
economic system while increasing for literally everybody 
outside of California the degree of consumer protection and 
giving a reasonable amount of consumer protection.
    I urge my friends, let's work together to duplicate that 
process. Do not think it is a good idea simply to use the fact 
that you have got the existing legal authority and push through 
something that is so controversial. It is not good for the 
stability of the economic system. One of the things we want is 
a sense that what we have done will go forward.
    When every Attorney General and every bank commissioner, 
Republican and Democratic, is so stridently in opposition, when 
you have a very strong bipartisan leadership of the chairwoman 
of the Oversight Committee, the gentle woman from New York, 
ranking member, the gentleman from Illinois, working together 
this is not the way to do it. Yes, there are arguments for 
preemption, there are arguments for economic uniformity, there 
are concerns about whether that is done with adequate consumer 
protection. Clearly, the Comptroller does not have statutorily 
the ability to deal with predatory lending that most of the 
States think or many of the States think are necessary.
    So I ask the people, let's join together and in the case of 
the question of the authority of the Comptroller to preempt and 
deal with national banks, let's follow the model that we 
followed last year. It is my impression that my friends think 
that ended well, and even some people who may not be such great 
friends, but all of us together, I think, thought we had a 
pretty good process. We preserved the economic needs of the 
system, and we provided consumer protection and you have a 
stable consensus system that will go forward. It is not in the 
interest of the financial community longer term, no matter what 
you think short term, to use your muscle to push something 
through that is inherently unstable because of the degree of 
resistance it has.
    And I would just close by saying, Mr. Chairman, I think we 
demonstrated on both sides of the aisle last year our ability 
to come together and deal with these issues in a sensible, 
balanced way. Please, let's follow that model again.
    The Chairman. The gentleman's time has expired. Under the 
rules of the Committee, the Chair is prepared to recognize 
members for three minutes for opening statements.
    With that, I recognize the gentleman from Iowa, Mr. Leach.
    Mr. Leach. Just briefly, I would like to comment on the 
parameters of what was just discussed but from another issue 
perspective, and that is the contrasting role of States and the 
Federal Government. This committee has recently passed a 
significant banking reform legislation that ironically moves in 
a little different direction than the ranking member just 
indicated; that is, we are empowering five States to give 
authorities that have never existed before in the American 
financial services community, and that is to give the effective 
power, full power of banking to a charter called the ILC 
charter. And this takes out of the loop the preeminent Federal 
regulators of holding companies, that is the Federal Reserve, 
and puts what in effect is an uneven playing field in 
regulation in the system all at the command of the potential of 
five States.
    And I would only raise this in a significant way in terms 
of competitive inequity but also in breaches of the current 
framework of banking where holding company regulation has 
always been something that we have considered of significant 
dimension but also in terms of the breaching of commerce and 
banking where, quite literally, Congress is contemplating 
giving powers to non-banks greater than powers that are given 
to banks. And this is a very significant issue that I think 
ought to be seriously reviewed, and it is an aspect of 
decentralization that I consider to be wholly unhealthy. It has 
one modest effect of devaluating all bank charters in America.
    And as the comment was made to friends in the associations, 
I would say, quite frankly, that several of the associations 
representing America's commercial banks have let down their 
community very significantly and that people ought to be 
thinking about this quite seriously from the perspective of the 
manner in which American economy is organized, the notion that 
some large institutions can breach the commerce and banking 
parameters in ways that have never been breached in modern day 
before is also very significant circumstance.
    And so it is my view that we have to be very careful as we 
weigh these issues of States' powers versus Federal powers and 
recognize that while there can be competitive pluses and 
minuses, there also can be a real social change that can occur 
if we are not very careful.
    Thank you, Mr. Chairman.
    The Chairman. I Thank the gentleman.
    The chair now recognizes the gentleman from Illinois, Mr. 
Gutierrez.
    Mr. Gutierrez. Thank you, Mr. Chairman. Good morning. I 
want to thank Sue Kelly, my Oversight Subcommittee chairwoman 
for originally calling this hearing to follow-up on our hearing 
of January 28. I am pleased that Comptroller Hawke has 
recovered sufficiently from his illness to join us here today 
and wish him again a speedy and full recovery.
    Due to the great interest in this issue, now it has become 
a full committee hearing, so I am happy to see that it has been 
expanded, the interest in this very, very important issue.
    I would also like to thank Ms. Kelly and Mr. Paul for their 
work on this important issue of OCC preemption. We are 
committed to working together with a number of our other 
colleagues on both sides of the aisle, including Ranking Member 
Frank, to ensure that our States have the power to protect 
consumers and to stop the OCC from eroding strong safeguards 
that have been used by States for more than a century to 
enforce consumer protection laws.
    It seems to me to make no sense for the OCC to attempt what 
many consider an unprecedented and unchecked expansion of its 
authority when States currently have the tools and the 
resources to effectively enforce consumer protection and other 
important laws.
    As many of you know, since our last hearing in January, 
representative Ron Paul and I passed an amendment to the 
Financial Services Committee's budget views expressing concern 
regarding budgetary effects of the OCC's recently published 
preemption rules. The budget views now put the Financial 
Services Committee on record that the OCC's preemption rules 
represent an unprecedented expansion of authority and one that 
was instituted without congressional authorization.
    Let me just ask that the rest of my statement be included 
for the record, and with no objection, Mr. Chairman, I would 
just like to end with a few brief comments.
    The Chairman. Without objection.
    Mr. Gutierrez. Thank you, Mr. Chairman. I would like to 
see, Mr. Hawke, if we could follow up and expand on what I know 
your conversations with me and other members of this committee 
and the House as you recover from your illness to talk to us 
about this issue. And I want to thank you for taking the time 
to come to my office, sitting down and speaking with me.
    I think we have a difference of opinion, and I think people 
can hold differences of opinion, but I think at the same time 
what we are looking for, what you are looking for, I know what 
I am looking for and other members of this committee is that 
consumers be protected and that the soundness of our banking 
system be protected in this nation. Both of them are important 
and shouldn't have to compete with one another.
    I think that if we brought bank examiners together, if we 
brought Attorney Generals together from throughout the States, 
if we brought your office and the good offices of this 
committee and others and sat down at a table where we could--
not in some back room but quietly sit down in an open 
discussion so that we can share frankly our views and find that 
road that allows us to protect our consumers, which is our 
primary goal in this issue, and you to fulfill your 
responsibilities to the soundness of our banking system as one 
of your main goals, and also I agree with you, consumer 
protection, I think we can all reach that together. So I hope 
that after this hearing we can continue to do.
    We are going to take an additional step, Mr. Chairman, and 
that is that Congresswoman Sue Kelly and I are sending today 
this letter to the Honorable David Walker, Comptroller General 
of the General Accounting Office. We will give Mr. Hawke a copy 
of the letter where we ask for them to see whether or not these 
are unprecedented moves and whether or not statutorily they can 
do what they say along with other consumer protection issues.
    Thank you so much, Mr. Chairman.
    [The prepared statement of Hon. Luis V. Gutierrez can be 
found on page 55 in the appendix.]
    The Chairman. The gentleman's time has expired. Are there 
further opening statements? If none, we will now turn to the 
gentleman from New York seeks recognition for an opening 
statement?
    Mr. Israel. Yes, Mr. Chairman.
    The Chairman. You are recognized for three minutes.
    Mr. Israel. Thank you. I want to thank you, Mr. Chairman 
and the Ranking Member Frank for conducting this important 
hearing today on OCC and their recent regulations. I also want 
to thank my colleague from New York, Ms. Kelly, as well as my 
good friend, Mr. Gutierrez, for leading the charge on this 
important issue. While I am not in agreement entirely with 
their stance, I am pleased that this important debate is taking 
place.
    I also want to thank our witness, Comptroller Hawke, for 
being here today.
    The discussion of late concerning the OCC has been about 
the issue of preemption and the powers of the OCC. But I 
believe the issue is bigger than that of the powers of national 
versus State-chartered banks or the presumed powers of the OCC. 
The real question here deals with ensuring the greatest 
protection of all American 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, I also believe the regulations they 
have put in place on this front are weak at best. Our 
constituents have no idea where their bank is chartered, and, 
quite frankly, they don't care. But they do care about 
protecting their money and their investments and keeping the 
access to capital free-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 the issues we need to address in Congress. 
Thankfully, these actions by the OCC have had the desired 
effect of reigniting the discussion about real legislation to 
address the issue of non-prime lending and our Nation's diverse 
patchwork of regulations governing it. Congress needs to 
develop legislation to create a new uniform Federal standard in 
lending practices that crushes predatory lending by correcting 
the non-prime market which continues to furnish capital to 
neighborhoods that were traditionally denied these resources, 
and I represent many of those types of neighborhoods.
    I look forward to today's hearing and hope for a good back 
and forth volley on questions and answers, not only on the 
issue of OCC regulation but, more importantly, on the larger 
issue of the need for congressional action to address lending 
abuses this year to protect all banking customers regardless of 
where their bank is chartered.
    And I thank the chair and ranking member again for allowing 
me this time to speak, and I yield back the balance of my time.
    [The prepared statement of Hon. Steve Israel can be found 
on page 57 in the appendix.]
    The Chairman. The gentleman yields back.
    The gentleman from California, Mr. Sherman?
    Mr. Sherman. Thank you. This seizure of power by the OCC is 
sweeping away congressional intent, sweeping away all State 
laws. It is illegal, it is wrong and it is politically stupid. 
It is illegal because you can't go way beyond anything Congress 
ever intended in terms of changing the way that our whole 
financial services industry is regulated. It is wrong because 
you have exposed consumers in my State to practices that my 
legislature wishes to prohibit without legislative hearings in 
this Congress. It is wrong because you have given a competitive 
advantage to one group of financial institutions over another, 
and, coincidentally, they happen to be the biggest, the most 
powerful and the biggest campaign contributors in the financial 
services industry.
    And it is politically stupid because neither the 
administration nor the majority party can disclaim 
responsibility for the harm to our Constitution, to our 
Federalism and to consumers that this is going to cause. Your 
agency does not have the capacity to deal with the consumer 
complaints, so you are really saying the consumers will have no 
way to complain. Your agency does not impose the limits on 
predatory lending that even this committee would feel necessary 
as part of national standards. The majority party cannot escape 
responsibility for this attach on Federalism and attach on 
consumers and attack on smaller businesses trying to do 
business with the national banks. You are part of the 
administration which must bear responsibility for your 
decisions.
    The majority party could put an end to this by a suspension 
bill this afternoon but has not done so. Instead we will await 
the action of the American people this November as they see 
that this fits into a pattern of unbridled corporate power and 
the unleashing of this corporate power, whether it is arsenic 
in our water or predatory lending in our real estate 
transactions.
    The Chairman. The gentleman yields back. Is there further--
the gentleman from Georgia, Mr. Scott?
    Mr. Scott. Thank you very much, Mr. Chairman. I appreciate 
this opportunity. Mr. Hawke, thank you very much for coming.
    I am from Georgia, served in the Georgia legislature for 
over 25 years, worked in banks and banking committee for all of 
those 25 years. As you know, we are in the catbird seat, one of 
the leading players in our fight against predatory lending. 
When you preempted Georgia's fair lending law, there were many 
concerns that were raised. One, that it might dilute consumer 
protections, it would be harmful to our dual banking system.
    But the most significant concern to me is this one: That 
the OCC and you, perhaps, Mr. Commissioner, and your failure to 
respond to a letter which was written by my commissioner, David 
Sorrell with the Georgia Department of Banking and Finance. And 
that letter was dated August 21, 2003. Seven months, Mr. Hawke. 
That is very, very disrespectful--disrespectful to Georgia, 
disrespectful to the people of this country that the OCC would 
preempt a State law.
    Our folks in Georgia in the catbird seat, one of those 
affected the most, we write letters and not one response in 7 
months. And this letter regarded three issues concerning the 
OCC's preemption of the Georgia's Fair Lending Act.
    And Mr. Chairman, I would like to in the interest of time 
submit this letter for the record, if I may.
    [The following information can be found on page 91 in the 
appendix.]
    The Chairman. Without objection.
    Mr. Scott. I would also like to submit a letter on March 
the 9th, 2004. Again, our banking commissioner of Georgia, 
Commissioner Sorrell, again wrote the OCC; no response. And he 
sent copies to our entire congressional delegation.
    Again, Mr. Chairman, if I may, I would also like to submit 
this March 9 letter for the record----
    The Chairman. Without objection.
    [The following information can be found on page 93 in the 
appendix.]
    Mr. Scott.----if I may.
    The Chairman. Without objection.
    Mr. Scott. Which includes, Mr. Chairman, which includes a 
detailed chronology of the efforts that our State of Georgia 
has taken to solicit a response from the OCC. Very 
disrespectful and disregard, Mr. Hawke. I am not convinced yet 
that we do need a national law to regulate predatory lending 
practices or what standards would be written into such a law. 
That very well would preempt the States. My mind is open on 
that issue. However, the OCC's actions are a good reason for 
Congress to assert some authority on these issues.
    And while the Georgia Fair Lending Act was indeed a flawed 
law concerning the assigning liability, we were responding to a 
very serious issue of predatory lending in that State. Georgia 
is the poster child for abuses of predatory lending. Federal 
regulatory preemption should be conducted in an open manner 
with adequate opportunities for comment and surely secure the 
respect of the OCC.
    The Chairman. the gentleman's time has expired.
    The chair would indicate to Mr. Hawke that the reason that 
the chair decided to have this hearing in the full committee 
was, as you can tell, there are a lot of strong opinions about 
the issue, and I thought it would be helpful to have a full 
committee hearing in that regard as opposed to the Oversight 
Subcommittee. And I think from the tenor of the debate, I think 
you can tell that this is why I made the decision I did.
    Again, we welcome you back to the Committee and you may 
begin.

   STATEMENT OF HON. JOHN D. HAWKE, JR., COMPTROLLER OF THE 
                            CURRENCY

    Mr. Hawke. Thank you, Mr. Chairman, Ranking Member Frank 
and members of the Committee. I welcome the opportunity to 
appear before the Committee to review both the condition of the 
national banking system and the Office of the Comptroller of 
the Currency and to address other issues of particular 
significance. I think that members of the Committee have raised 
some very significant issues this morning that are very much 
worth discussing in greater detail.
    I also should say, Mr. Chairman, that I very much 
appreciate, on a personal level, the statements of good wishes 
with respect to my return to work, and I can only say that I 
hope I feel as good after this hearing is over as I did coming 
into it.
    The national banking system, approximately 2,100 financial 
institutions, holding 56 percent of all commercial banking 
assets, is in excellent health. By historical standards, the 
system is exceedingly well-capitalized. Today, all national 
banks, with minor exceptions, have risk-based capital above 8 
percent, and less than 1 percent of national banks have risk-
based capital below 10 percent. In 2003, the national banking 
system set new earnings records as measured by return on equity 
and return on assets.
    National banks continue to play their traditional role as a 
key source of investment capital to America's businesses and 
communities. In 2002 and 2003, total bank loans grew by 7.8 
percent and 7.6 percent, respectively. Consumer loans and loans 
backed by commercial and residential real estate have seen 
particular growth. Consumers have tended to use funds from 
mortgage refinancing and home equity lines to pay off higher 
interest credit cards and installment debt, a trend that has 
helped sustain overall consumer spending and that has been 
widely credited with having eased the duration and severity of 
the 2001 recession.
    Credit quality today is also strong, particularly for this 
stage of the economic cycle. The OCC continues to monitor 
developments in areas that present vulnerabilities, such as 
small business lending and certain real estate markets and 
property types.
    Let me now turn briefly to the condition of the OCC, an 
organization of some 2,800 people--1,700 of them bank examiners 
in the field. Their skill and professionalism are recognized 
and respected--and, in my view, unmatched--around the world. 
Our people work out of the OCC's Washington headquarters, the 
Ombudsman's office in Houston, and our 4 district offices, 49 
field offices, and 23 satellite locations in cities throughout 
the United States, and our examining office in London. In our 
large bank program, we have teams of full-time examiners on-
site, as many as 35 or 40 in our 25 or so very largest banks, 
and they constantly monitor the condition of those banks.
    The OCC receives no appropriated funds. All of our funding 
is derived from assessments and fees received from national 
banks. We have focused on modernizing our financial operating 
systems and ensuring that we manage our financial resources 
wisely. The agency's budget has been balanced every year during 
my tenure as Comptroller, and we have been building our 
strategic contingency reserve to ease the impact of unforeseen 
disruptions to our operations or unexpected demands on our 
resources. Our present goal is to build the reserve to equal 6 
months' operating expenses, a goal that we expect to achieve in 
mid-2005.
    The OCC's financial condition and the strength of its 
resources have taken on wider significance in light of some of 
the questions that have been raised about whether the OCC has 
sufficient resources to assure adequate protection for 
customers of national banks and their subsidiaries. These 
questions have been raised, as they have this morning, in the 
context of our recent regulations relating to the applicability 
of State laws to national banks and the role of State officials 
in enforcing consumer protection laws against national banks 
and their subsidiaries.
    I would be pleased to discuss these regulations in further 
detail, but let me state emphatically that neither regulation 
involves any fundamental shift in regulatory roles or 
responsibilities, neither alters the OCC's continuing 
commitment to consumer protection, and neither should impose 
new or unmanageable burdens on our enforcement and compliance 
resources.
    We are proud of our long record of protecting consumers 
against abusive and unfair banking practices and developing 
supervisory innovations that have advanced that goal--
innovations that have been emulated by other financial 
regulatory agencies. We have pioneered the use of section 5 of 
the Federal Trade Commission Act as a basis to take 
administrative enforcement actions against unfair and deceptive 
practices; we have thwarted payday lenders and their strategy 
to evade State laws through alliances with national banks; we 
have secured millions of dollars in direct restitution for 
consumers; we have developed comprehensive supervisory guidance 
to warn banks of the consequences of engaging in predatory 
lending; we have adopted special procedures to assure full and 
prompt consideration of customer complaints referred to us by 
State officials and much more.
    Indeed, our new preemption rule materially strengthens our 
ability to fight predatory lending by prohibiting national 
banks from making any consumer loan based predominantly on the 
foreclosure or liquidation value of a borrower's collateral and 
disregarding the crucial question of whether the borrower can 
afford the loan. I think this issue lies at the very heart of 
predatory lending. Our advisories on predatory lending caution 
banks that if we find evidence of abusive practices, we will 
not only take strong enforcement action but we will take it 
into account in evaluating the institution's CRA performance.
    At the OCC, consumer protection is a long-standing and 
integral part of our mission. Over 100 OCC examiners throughout 
the country are compliance specialists. They not only perform 
detailed compliance examinations but also serve as expert 
advisors on consumer protection issues to other examiners. And 
our 1,700 person strong field examination staff is backed by 
dozens of attorneys who work in enforcement and compliance.
    I would point out by way of comparison that State banking 
departments collectively supervise about 113,000 entities, of 
which approximately 6,000 are commercial banks. For all of 
these entities, the Conference of State Bank Supervisors 
reports that the States have a total of 2,308 examiners at 
their command. In other words, if each and every State examiner 
spent 100 percent of their official time examining commercial 
banks, leaving all 107,000 savings banks, thrifts, credit 
unions, mortgage bankers, payday lenders, check cashers, pawn 
shops and other sundry financial providers that variously fall 
under State authority entirely unsupervised, the OCC's 
supervisory resources would still outstrip those of the States. 
The chart attached at the end of my written statement 
illustrates this comparison.
    Supplementing the work of our examining corps is our 
Customer Assistance Group, or CAG, which is co-located with the 
OCC's Ombudsman's Office in Houston. In 2003, this world-class 
operation processed more than 70,000 complaints and inquiries 
from bank customers in a prompt and sympathetic manner. It has 
also served as a de facto clearinghouse of complaints and 
inquiries that have been addressed to us but which really 
belong in other agencies. We have distributed to the Committee 
this morning a chart that shows the extent of the referrals 
that our Customer Assistance Group effects every year. Last 
year we received 6,550 referrals from State agencies, and we 
referred over 13,000 inquiries and complaints to other Federal 
and State agencies, including 755 primarily to State banking 
agencies.
    While some have mistakenly concluded that CAG is the means 
by which we carry out our enforcement and compliance 
responsibilities, that is not at all the case. Enforcement and 
compliance remains first and foremost the responsibility of our 
large battery of examiners and attorneys. The CAG is a very 
important adjunct to that resource. For example, we carefully 
track the volume of complaints we get, bank by bank, and if we 
see troubling patterns develop, CAG will promptly get our 
examiners involved to look into what might be going on at the 
bank to cause such a result. And we have had very good results 
from that.
    The OCC also cooperates with State authorities to accept 
referrals when the States receive a complaint regarding a 
national bank, and we make referrals to State authorities when 
we get a customer complaint regarding a state-supervised 
institution, as the data that I just referred to demonstrates. 
I think it is obvious from that data that the OCC and the 
States are already working together on a routine basis to help 
bank customers resolve their issues, and we would like to build 
on that foundation.
    We have invited State bank supervisors and State attorneys 
general to visit our Houston office to learn more about how we 
handle consumer complaints. We have established special 
procedures to handle and track referrals from State authorities 
concerning national banks and their subsidiaries that are 
alleged to have engaged in abusive or predatory practices. We 
issued a new advisory letter to national banks clarifying our 
expectations about how they should handle consumer complaints 
forwarded to them by State agencies, and we have made it clear 
that we will not look kindly on a bank that cites the OCC's 
exclusive visitorial power as a justification for not 
addressing referred complaints or providing information about 
the disposition of complaints to State agencies. And we have 
proposed a model Memorandum of Understanding to facilitate the 
sharing of information about consumer complaints with the 
intent of providing effective coordination of enforcement 
activities with State agencies.
    By coordinating resources and working cooperatively with 
the States, we are convinced that we can maximize benefits to 
consumers, close gaps between existing consumer protection 
laws, and most effectively target financial predators. And we 
welcome further dialogue with the States to explore those 
goals.
    One recent example is the coordination related to Security 
Trust Company, which was involved in the mutual fund scandals 
in Arizona. We worked with the SEC and with the Attorney 
General of New York very effectively and with great good will 
in that case.
    Finally, let me say a few words about the Basel II process. 
This is an enormously complex and important project, and the 
OCC has been deeply involved in it for more than 5 years. There 
are still important issues to be resolved as we approach the 
Basel Committee's target date of mid-year 2004 for the release 
of a ``final'' paper, and we will continue to work hard on 
those issues.
    The important thing to understand about this process is 
that it is far from over. Before we adopt final implementing 
regulations for national banks, there are a number of important 
domestic processes that need to be completed. First, we must 
complete a new quantitative impact study, as we promised this 
committee, so that we will have a much sounder basis for 
estimating the actual impact of Basel II on the capital of our 
banks. Second, we must complete the economic impact analysis 
required by Executive Order 12866 so that there will be a much 
clearer understanding of the implications of Basel II for our 
economy. Third, we need to continue the dialogue with this 
committee and its counterpart in the Senate on the progress of 
this process and the issues that have been raised. Finally, we 
must draft and then put out for comment our final implementing 
regulations.
    I am confident as this process moves ahead we will uncover 
a great many more issues that will require us to go back to the 
Basel Committee for appropriate responses. I also feel 
confident that the current implementation date of year-end 2006 
will be difficult, if not impossible, to realize.
    Let me say, Mr. Chairman, that the interest and involvement 
of this committee in this very difficult process has been of 
enormous value to us. Other members of the Basel Committee have 
followed very closely the proceedings of this committee and the 
public statements of its members on Basel II. This has not only 
strengthened our hand in the negotiation process but has sent 
the message that all legislators intend to have an important 
role in the oversight of this process, and for this we are very 
grateful.
    In conclusion, Mr. Chairman, the national banking system is 
sound, and its recent performance has been strong. It has 
successfully weathered the recent recession, and it is 
responding in dynamic fashion to changes in the financial 
services marketplace. The OCC, too, is keenly focused on 
keeping pace with change. We look forward to working 
productively with you, with members of this committee and with 
State officials as we pursue our efforts to achieve that goal.
    Mr. Chairman, I wondered if I could just take one 
additional moment on another matter. I want to pay tribute here 
to those employees of OCC who have been called to active duty 
in Iraq and particularly to four members of our staff who 
volunteered to go to Iraq as part of the U.S. team that is 
helping to rebuild that country. These courageous OCC staffers 
are working on the rehabilitation of the Iraqi banking system 
and are doing a fantastic job. They are in harm's way every 
day, but they are demonstrating real dedication and we are 
enormously proud of all of our OCC colleagues that are serving 
in Iraq.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. John D. Hawke Jr. can be 
found on page 60 in the appendix.]
    The Chairman. Thank you, Mr. Hawke, and we all share your 
pride in the OCC folks who are in Iraq, particularly after 
recent developments in Iraq. They are very brave and strong 
Americans, and we appreciate their service.
    You mentioned Basel II at the end of your comments. It was 
about a year ago or so when you testified here before the 
Committee regarding both your substantive and procedural 
concerns about the Basel II capital proposal. What is your 
current position regarding the Basel II? I know we look forward 
to the quantitative impact study, which will be an integral 
part of the decision-making process. When can we expect that, 
and, just generally, where are we? In fact you indicated the 
2006 goal would be difficult to attain. If you could give us a 
little better feeling for that date as well.
    Mr. Hawke. I would be happy to, Mr. Chairman. The Basel 
Committee is meeting in May, and it is expected that a as a 
result of the May meeting what I refer to in quotations as the 
``final Basel paper'' will be put out. It is not final except 
to the extent that it allows domestic processes to move ahead 
with something that has more specifics than we have seen in the 
past.
    There are still some very important open issues we are 
discussing here in the United States, for example, on an 
interagency basis, the treatment of retail credit and 
particularly credit cards. I have felt very strongly that we 
must be very careful not to adopt rules that have unintended 
adverse consequences for the enormously successful consumer 
credit industry that our banks have helped to develop in this 
country.
    After the Basel Committee comes out with its mid-year 
paper, we will begin the conduct of the quantitative impact 
study, which I think is enormously important because we don't 
really have a solid basis today for determining--estimating the 
impact of Basel II on the capital of our banks. Following the 
quantitative impact study, we will begin to prepare domestic 
rulemaking matters that will translate Basel II into domestic 
rules, and we will continue the dialogue with this committee.
    During that process, I expect, based on past experience, 
that numerous issues will be raised that will cause us to go 
back to the Basel Committee for change or clarification. Just 
the quantitative impact study, for example, might tell us that 
the results of Basel II are that there will be an unacceptably 
expensive impact on the capital of our banks. We need to know 
that before we sign on to anything. So there is a lot of 
process still to come and an important role for the dialogue 
between us and the Basel Committee.
    The Chairman. Thank you. You have talked about your 
willingness to talk with State officials regarding ways to 
improve the handling of customer complaints, and I understand 
you have an agreement with State insurance regulators in all of 
the 50 States. Can that serve as a model for working with the 
State banking supervisors as well?
    Mr. Hawke. I think it could be a very compelling model. We 
were not always together with the State insurance commissioners 
on substantive powers issues, but we have been able to put 
those issues aside. Congress resolved most of them in Gramm-
Leach-Bliley. We now have agreements with 48 State insurance 
commissioners, and those agreements provide a very effective 
mechanism for the exchange of information and the referral of 
complaints about practices engaged in by the insurance 
affiliates of national banks. We also meet regularly with the 
National Association of Insurance Commissioners.
    The Chairman. The concern has been expressed in some 
quarters that the OCC's regulations clarifying the 
applicability of State laws to national banks and their 
operating subsidiaries would somehow authorize those entities 
to engage in real estate brokerage activities. My reading of 
the regulations and current Federal law, namely Gramm-Leach-
Bliley, suggests that there is no basis for this concern. Is 
that an accurate assessment?
    Mr. Hawke. That is completely accurate. It is unfortunate 
that the realtors have persisted in misreading our rules, and 
we have tried to counsel with them and explain that nothing in 
our regulations remotely bears on real estate brokerage. 
National banks are not permitted to engage in real estate 
brokerage even though banks in 25 or 30 States are permitted to 
do that. This is an issue that is vastly premature. It relates 
to the realtors' fight with the Treasury Department and the Fed 
over rulemaking under Gramm-Leach-Bliley. It has nothing to do 
with national banks or the OCC's recent regulations.
    The Chairman. Thank you for clearing that up. Finally, in 
the past year, we have seen several major mergers involving 
national banks and the creation of an increasing number of 
megabanks that operate globally. What challenges does the rapid 
pace of industry consolidation pose to the OCC as the primary 
Federal regulator for Federally chartered banks? In that vein, 
we can all recall for a number of years when the largest banks 
in the world were listed, there would be maybe one U.S. bank in 
that category and several Japanese banks.
    The world has changed dramatically. There was a lot of 
concern expressed in a lot of quarters that where were the 
American banks in this new global economy? And it appears now 
we are very competitive in that area and will continue to be 
so, but what kind of pressures and goals does that present to 
you?
    Mr. Hawke. Well, let me say first, Mr. Chairman, that we 
already supervise what I think could fairly be called 
megabanks. We have several banks in our portfolio that are 
extremely large, approaching, if not exceeding, the trillion 
dollar mark. And so we have had a fair amount of experience on 
the supervisory side in dealing with them.
    The expansion of the number of megabanks and the growth of 
the existing large banks will certainly present challenges. 
There will be an added degree of complexity. The risk 
management systems, the modeling that they use will become more 
complex, and we have got to keep up with that. The kinds of 
instruments that they issue will become more sophisticated. We 
have excellent people working in all those areas, and I think 
we are quite ready to take that challenge on. But we are 
spending a good deal of time in reviewing just how we supervise 
these large banks.
    As I said before, at the very largest banks, we have full-
time, on-site teams of examiners. So our mode of review in 
these banks is continuous supervision. We are intimately 
involved with them all the time, and we will continue to be.
    The Chairman. Thank you.
    The gentleman from Massachusetts.
    Mr. Frank. Thank you, Mr. Chairman, and I want to join you 
in expressing our support for the words that Mr. Hawke 
mentioned about the people serving in Iraq. That is a very 
important contribution.
    I want to call people's attention to the CD that we are 
about to show that preaches Mr. Hawke. You are about to see Mr. 
Hawke in stereo.
    Mr. Hawke. Before he lost weight.
    Mr. Frank. You can use this as before and after.
    (VIDEO)
    Mr. Hawke. ``I am Jerry Hawke, the 28th Comptroller of the 
Currency. Banks in the United States have a unique privilege: 
The right to choose their primary regulator. The Office of the 
Comptroller of the Currency is the primary regulator of banks 
that hold the national charter, a unique and powerful 
instrument for carrying on the business of banking. How the OCC 
and the national charter can help banking organizations achieve 
their goals is the subject of this presentation.''
    Mr. Frank. Thank you, Mr. Chairman. That is a teaser, and 
if people want to see the whole thing, I am a great respecter 
of intellectual property, they can contact--I don't know, 
Jerry, you can give your web site later on and maybe they will 
download it without paying for it and we will get----
    Mr. Hawke. We have got extra copies.
    Mr. Frank. Yes. I appreciate that you do. We are not in a 
static situation, we are in a dynamic situation, and part of 
the concern we have, many of us, is as made clear here. The 
emphasis on the preemption, the firmness of this, the great 
scope of it, OCC says, ``Well, it has always been that way.'' 
People didn't know it was always that way, and, clearly, the 
intention of that is to persuade people who have State charters 
to come to Federal charters. The problem I have is that it is 
not purely what we think of as banking activities. You have 
operating subsidiaries.
    With regard, for instance, to predatory lending, you have 
made the point that there hasn't been a great deal of 
accusations in predatory lending at national banks to date 
accurately. But, again, you are out there advertising, you are 
encouraging people to come to be regulated by you under these 
new rules and change their charters and with this preemption. 
That is part of the problem.
    In particular, I was troubled in this article that is in 
the Wall Street Journal for the 28th of January by Jess Bravin 
and Paul Beckett called, ``Friendly Watchdog.'' I would ask 
unanimous consent it be put in the record.
    The Chairman. Without objection.
    [The following information can be found on page 87 in the 
appendix.]
    Mr. Frank. Here's the example that is particularly 
troubling to me. In Michigan, the State Motor Vehicle Sales 
Finance Act passed in 1950 requires auto dealers fully disclose 
installment payment terms, limits document preparation fees and 
restricts the conditions under which a car can be repossessed. 
The statute applies only to dealers who sell cars through 
installment plans.
    You have now preempted that, because the National City 
Bank, which is part of the National City Corp and the 
Huntington National Bank owned by Huntington Bank Shares of 
Columbus, Ohio has this relationship with the dealers who 
market their car loans. As a result of your preemption, 
Michigan's law which applies to car dealers now doesn't apply 
to car dealers if they are affiliated with a national bank.
    What is so important to the uniformity of the banking 
system that you now have to bifurcate Michigan's administration 
of its laws applying to car dealer loans? Because if you buy a 
car on the installment plan and it is financed, I guess, by 
GMAC or by a State bank, it is one thing, but if it is by a 
national bank, those laws don't apply. Then, additionally, what 
laws have you got, what rules do you apply? Are there 
comparable rules that you apply to protect people who buy cars 
under the installment plan?
    Mr. Hawke. Well, let me say first, Mr. Frank, that 
preemption of course is a constitutional doctrine, and we----
    Mr. Frank. Mr. Hawke, that is not what I asked you. I have 
only got a limited amount of time. What rules have you got to 
protect car buyers?
    Mr. Hawke. We don't have any rules that----
    Mr. Frank. Any rules at all. So the effect in Michigan was 
that you canceled out those Michigan rules passed in 1950 and 
continued--apparently, Michigan hasn't felt any need to change 
them in, what, 65 years? And you substitute nothing. Is that a 
good system? I mean now that you have made this clear, do you 
plan to adopt some rules dealing with people who buy cars?
    Mr. Hawke. We don't have any such intentions. But, Mr. 
Frank, I think it is important to recognize that that law 
prevented national banks effectively from making loans through 
car dealers, and it was a direct interference with the exercise 
of their Federal powers.
    Mr. Frank. How did it prevent them? Did it prevent anybody 
else from making loans through car dealers? Are there no loans 
through--I mean what about State banks, do they make loans 
through car dealers?
    Mr. Hawke. I don't know what State banks do.
    Mr. Frank. Well, they probably do. I mean you say it 
prevented them. It prevented them from making loans totally 
unrestricted, but of all places I think Michigan is probably a 
State where buying cars probably didn't get interfered with. I 
mean they like buying cars and selling cars in Michigan. So the 
notion that the State of Michigan would for 65 years have 
maintained on its--it is 55 years, my arithmetic's off--the 
notion that for 55 years would have retained on it books a law 
that made it hard for banks to finance cars is not credible. 
This is an example.
    Let me, and we are running out of time, so I just want to 
say why are you sending out the video? I mean do you have an 
institution or interest in getting banks to switch? Why do you 
care? I mean shouldn't it just be that you are out there and if 
banks want to be national, you do this, and if they want to 
be--why are you recruiting? Why are you out there trying to 
encourage them to change their charter?
    Mr. Hawke. Well, I will be happy to address the question 
why we prepared that video, which was done for----
    Mr. Frank. No, that is not what I--why are you out there 
trying to get them to change?
    Mr. Hawke. I would like to answer the question that you 
raised about why we distributed the video, Mr. Frank, if I may. 
The reason that we prepared that video was because we get 
hundreds of questions all the time from organizers of banks, 
from lawyers and consultants who want to put banks together, 
and they ask us what can we tell them about the charter choice 
that they have to make.
    Mr. Frank. Who did you send the video to, Mr. Hawke?
    Mr. Hawke. If I can finish my answer, Mr. Frank.
    Mr. Frank. No, because you are going to filibuster. I agree 
with you on some things, but I don't want this--I am asking you 
very specific questions, and I think you are frankly evading 
the point. I think you sent that video in substantial part to 
persuade State-chartered banks to switch their charter.
    Mr. Hawke. We send that video to people who are interested 
in knowing what the difference is between a national charter 
and a----
    Mr. Frank. That includes State-chartered banks, right? Do 
you only send it out to people who ask you or did you--I mean 
is this like a--is there a ``don't video me'' list?
    Mr. Hawke. No. We make it available to----
    Mr. Frank. Did you send this unsolicited to a lot of State 
banks?
    Mr. Hawke. We don't send it out unsolicited. We make it 
available to anybody who wants to pick it up at----
    Mr. Frank. What do you mean make it available?
    Mr. Hawke. Mr. Frank, what we did----
    Mr. Frank. What do you mean by make it available?
    Mr. Hawke. We have it available when bankers' groups come 
through to visit us. We make it available----
    Mr. Frank. Do you suggest--do they ask you, ``Hey, I heard 
you have got this hot new video, the Jerry Hawke video.'' How 
do they know about it, these State banks?
    Mr. Hawke. I will tell you what happens. The State bank 
supervisors are out there very aggressively marketing----
    Mr. Frank. No, no. Come on. I am sorry, now, Jerry, you are 
just filibustering. What do you do to make it available to 
State banks? Do you take the initiative in sending that video 
to State banks?
    Mr. Hawke. We do not send it out unsolicited.
    Mr. Frank. Do you call it to their attention? Do you call 
it to their attention? Come on. Don't play around.
    Mr. Hawke. If bankers' groups come through, it is among the 
materials that we distribute to them, but----
    Mr. Frank. Without soliciting----
    Mr. Hawke. You are not letting me answer the question, Mr. 
Frank.
    Mr. Frank. No. I resent that. You don't want to answer the 
question. Here's the deal: You are engaged in recruiting. This 
is part of your recruitment, and you don't want to acknowledge 
it. And, frankly----
    Mr. Hawke. No. I do acknowledge it.
    Mr. Frank.--you are better off acknowledging that you are 
recruiting.
    Mr. Hawke. I do acknowledge it, but you won't let me 
explain why we put this video together or how it is used or 
what it responds to.
    Mr. Frank. I was asking you how it was used. You sent it 
unsolicited----
    Mr. Hawke. What it responds to is, first of all, inquiries 
that we get about people who want to form banks and they want 
to know what the difference is between our charter and the 
State. Second, we send it to national banks when they ask us if 
we have any materials to respond to the very aggressive 
marketing efforts of State bank supervisors who personally get 
in touch with our CEOs and with boards of directors to try to 
market the State charter and induce conversion, which is 
something we do not do. We provide it to them on request----
    Mr. Frank. All right. You have given me two categories. 
One, you send it out to people who ask for it; two, you send it 
to national banks who ask for it. But there is a third category 
and you are just being evasive. Clearly, you have acknowledged 
you make it available to others. Yes, you and the State-
chartered banks are in kind of a competition here.
    Mr. Hawke. I don't deny that at all.
    Mr. Frank. Okay. Well, you just tried to, I think, and I 
don't understand why it is appropriate for the Federal bank 
regulator--I mean you don't get paid by the bank, you are not 
on commission here. You are a regulator and I just think--and 
the problem I have is this, and I am going to close with this: 
If am the regulatee a competition between regulators to have me 
join up into their shop I think means, ``Oh, gee, I have to 
look for who is going to regulate me the least.''
    I think it is counter to the public interest to have 
regulators in a competition. I will say the same thing to the 
States, but we don't have as much control over them. I do not 
think the Federal bank regulator ought to be competing with 
others to try and induce the regulatees to come be regulated, 
and I think that is a big part of our problem.
    Mr. Hawke. Well, I would invite you to look at the web 
sites of most State bank supervisors who very aggressively 
market State bank charters, and they do it in two ways. First 
of all, they exploit the Federal subsidy that is made available 
to State banks, because the Fed and the FDIC don't charge for 
examination services. That is exploited every day by State bank 
supervisors. Second, they advertise with kind of wink how close 
they are and how responsive they are.
    Mr. Frank. Let me just--I have one more. Why do you care? 
So some banks leave your regulatory jurisdiction and they go 
there. Just hurts your pride? I don't understand this, why are 
you in this competition with them, you said you are. Why aren't 
you just out there to regulate the banks that want to be 
national banks, and if they want to be State banks, that is 
also Okay? What is your institutional interest?
    Mr. Hawke. I think the essence of the dual banking system 
is competition between charters. That is what it is all about.
    The Chairman. The gentleman's time has expired.
    The gentleman from Iowa, Mr. Leach.
    Mr. Leach. Well, I would like to raise another question on 
the competitive regulation issue in another context in 
relationship to statute the House is advancing. The chairman of 
the Federal Reserve has argued that the lack of activity limits 
on and consolidated supervision of the organizations which own 
ILCs create competitive inequities in the financial marketplace 
to the disadvantage of traditional national bank charters and 
traditional State bank charters. Does the 28th Comptroller of 
the Currency agree?
    Mr. Hawke. Well, Mr. Leach, ILCs I know are an issue of 
great concern. It is not an issue that comes within our 
supervisory or regulatory involvement. The major issue with 
respect to ILCs is, obviously, as you said before, banking and 
commerce, which is an issue I know that you feel very deeply 
about. And the question that present is where to draw the line, 
a question that this committee has grappled with on many 
occasions.
    I think it is certainly appropriate for Congress to 
consider not only that policy but the safety and soundness 
aspects of depository institutions affiliated with non-banking 
operations and also the competitive issues that are raised by 
that. As I say, we haven't really had occasion to take a 
position on this issue, because it is not something that comes 
within our regulatory jurisdiction.
    Mr. Leach. But do you see any competitive inequities?
    Mr. Hawke. Well, I think there are--any time you have a 
situation where an institution of that sort has powers that go 
well beyond those that are available for others, there is a 
potential for a competitive issue.
    Mr. Leach. So even though you have already indicated there 
is competition between State and Federal regulators, you don't 
think that the Comptroller should be deeply concerned that 
there are competitive inequities that affect institutions the 
Comptroller supervises or are you saying that they should? You 
are suggesting that the competitive inequities exist.
    Mr. Hawke. There are a lot of competitive inequities. We 
hear complaints from our banks all the time about competitive 
inequities with credit unions, for example, who have a status 
that enables them to compete very vigorously with our banks. If 
ILCs, by virtue of the lack of restriction on who can own them, 
had competitive advantages over national banks, I think that 
would be of concern to us. Well, I will just leave it at that.
    Mr. Leach. Thank you. No further questions.
    The Chairman. The gentleman yields back.
    The gentleman from Illinois, Mr. Gutierrez.
    Mr. Gutierrez. Thank you very much, Mr. Chairman. I would 
like to go back to the preemption because sometimes lenders put 
clauses in their contracts to discourage borrowers from every 
pursuing legal claims. In fact, some lenders put clauses in 
loan documents that make borrowers agree that only certain 
courts can hear their claims--a lot of language sometimes when 
you get a car or buy a consumer product. And so they do 
everything they can so that the consumer can't go into certain 
courts. I think we all agree that that happens out there in the 
real world.
    Well, in Georgia, they had an anti-predatory lending that 
tried to stop this practice, and that law was preempted by the 
OCC. For the life of me I can't figure out why the OCC would 
try to prevent Georgians from trying to protect themselves and 
their consumers and what the OCC would want to do in preempting 
a Georgia law so that Georgians who are getting ripped off have 
different avenues that they can go.
    And it seems to me that the Office of Thrift Supervision 
said that they did not believe they had that power to preempt 
the Georgia law on thrifts, yet apparently the OCC feels it has 
the same power that the Office of Thrift Supervision doesn't 
feel it has over its thrifts.
    So I guess just following up on Mr. Frank's question is 
that I bet that if each of us, members of this committee, went 
back to their States--because, Mr. Hawke, there are 50 Attorney 
Generals, each one of them elected by the people of their 
State. These are law enforcement officers and all 50 of them 
said unanimously, ``What Mr. Hawke is doing and the OCC is 
doing is affecting our ability as State law enforcement 
officers from carrying out consumer protection laws in our 
State.'' Pretty broad-based group of law enforcement officers.
    If the 50, I don't know, Chicago police officers got 
together, I think you might think that was enough, but imagine 
New York and all of the police officers, LA, Chicago and all of 
our cities coming together to say, ``Congress is doing 
something,'' not in this case, we are not doing anything, ``but 
a Federal institution is doing something that impairs.'' 
Because it is a crime. I mean selling drugs on the corner is a 
crime, right? Mugging, rape is a crime. Murder is a crime. 
Predatory lending is a crime. So we should not somehow take 
these State Attorney Generals and these bank supervisors who 
are out there to fight crime.
    And so it surprised me that when I read your opening 
statement that you said, ``The OCC's mission is accomplished 
through three major programs: Supervise, charter and 
regulate.'' And nothing is said here about consumers and 
protecting the consumers. It is supervise, charter and 
regulate. And it wasn't until page 18 that I finally read 
something that spoke about consumer protection.
    So I don't get it, Mr. Hawke, why we can't sit down and 
bring elected officials, Attorney Generals and bank supervisors 
who are appointed, much as you were, the President nominated 
you, you were confirmed by the Senate. Guess what, these bank 
supervisors at State banks are nominated by their respective 
governors and that is State government. You know, we always 
said here, especially I heard it a lot from my colleagues from 
the other side is, ``Washington doesn't have the answers.'' 
They have the answers at the local level because they are 
closer to the people.''
    States' rights. You know, in this case, I think that is why 
Sue Kelly and Mr. Paul and I are working together. We do agree 
that when it comes to fighting crime, even if you, Mr. Hawke, 
increased and you are not increasing the number of supervisors 
you have. According to your testimony, you are decreasing the 
number of people you have. You have it right here in your 
testimony, you are decreasing the number. But let's say you 
were increasing it. Let's say I am wrong and I misread your 
numbers. If you have got 2,000 people fighting crime, why 
wouldn't you want 2,000 more, 1,500 more, 7 more, 5 more, so 
when I am affected by crime and 911 doesn't answer, right, 
which is OCC, 911, doesn't answer, maybe somebody at the local 
level will take this under their charge and help us fight 
crime.
    Having said that, don't you believe----
    The Chairman. The gentleman's time has expired.
    Mr. Gutierrez. Has it?
    The Chairman. It has indeed.
    Mr. Gutierrez. Oh, God.
    [Laughter.]
    Mr. Gutierrez. Aren't you going to give the gentleman 
another minute to answer my question?
    The Chairman. You are just getting on a roll.
    Mr. Gutierrez. Well, don't you believe we can work out a 
cooperative agreement sharing jurisdiction with the States, 
preserving their authority to protect consumer rights? I think 
Mr. Hawke should be given 5 minutes to answer that 5-minute 
question.
    [Laughter.]
    The Chairman. That was a 5-minute question, 5 minutes plus, 
but we will----
    Mr. Gutierrez. Well, if I were still the ranking member and 
this were held in my subcommittee, I would be given a little 
more latitude.
    The Chairman. The gentleman may answer the 5-minute 
question.
    Mr. Hawke. Thank you, Mr. Chairman.
    First of all, Mr. Gutierrez, our regulation does not 
preempt the arbitration clause in the Georgia law, so the 
concern that you have in that respect should be satisfied. 
Second, 911 does answer. It answers 70,000 times a year. We get 
60,000 or 70,000 inquiries and complaints from customers of 
banks, many of which we refer back to other agencies or to the 
States. We have an extremely effective consumer complaint 
processing operation. Third, it is not us who is keeping State 
Attorney Generals out of national banks, it is Federal law that 
has been on the books for 140 years.
    For 140 years, there has been a statute that says that the 
OCC has exclusive visitorial powers against national banks. 
That is to examine, to come into them, to take enforcement 
actions against them. That has been virtually unchanged. There 
are some very minor exceptions to it, none of which permits 
State attorneys general to come into our banks. As a matter of 
fact, 10 years ago when Congress passed the Riegle-Neal 
Interstate Branching Act, it reinforced that principle by 
saying that in the interstate branching context, State consumer 
protection laws, to the extent that they are not preempted, 
will apply to national banks, and the OCC will be the exclusive 
enforcer of those laws against national banks. So we operate in 
a statutory framework in which State law enforcement officials 
take enforcement actions against State banks and others within 
their jurisdiction and we take enforcement actions against 
national banks.
    What is important here is not turf, not who takes 
enforcement actions against what institutions but how we arrive 
at coordination and a sharing of information. We have done that 
on many occasions. In the Providian case several years ago, we 
worked very effectively with local law enforcement authorities 
in California. We each worked within our own jurisdiction and 
we got $300 million in restitution against a bank while the 
State officials got restitution from the non-bank aspects of 
the company.
    I mentioned the Security Trust Company case where we worked 
effectively with the State of New York and the SEC. If we can 
arrive at a modus operandi with State law enforcement officials 
where we refer matters back and forth within one another 
jurisdictions, we can be much more effective than we can if we 
are jousting about who has got jurisdiction over whom. The 
ability to send banking----
    Mr. Gutierrez. I think, Mr. Chairman, the answer is, yes, 
you are willing to work out a cooperative agreement with States 
Attorney Generals.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman. I will table for 
the moment the whole question of the desirability of 
preemption, but since the question was raised by the other 
gentleman, can you give us in very precise detail the resources 
that the OCC has to perform the task of consumer protection? Is 
it fewer resources, is it more resources? What is it that the 
OCC has to engage in the exercise of consumer protection?
    Mr. Hawke. We have 1,700 bank examiners, and we have 300 
bank examiners who are permanently and full-time on-site at our 
largest banks. We have over 100--and those 1,700 bank examiners 
work, many of them, in consumer compliance and consumer 
protection. We have 100 examiners who are dedicated entirely to 
consumer protection and compliance. We have several dozen 
attorneys in Washington and throughout the country who work on 
enforcement and compliance matters. And we have our Customer 
Assistance Group in Houston, which has 40 people working full-
time, receiving tens of thousands of complaints and processing 
them very effectively and getting very good results for 
consumers.
    There has been a misapprehension that the regulations that 
we put out in January are somehow going to result in a massive 
switch of responsibilities and a huge in-flow of work to the 
OCC. That is categorically not the case. Those regulations did 
not change anything in the environment that would cause the OCC 
to face a resource shortage because new matters are going to be 
referred to us of the sort that we didn't handle before.
    Mr. Hensarling. Although the OCC is principally known as 
the regulator of very large, some of the Nation's largest 
banks, in fact it is the community-based institutions, I guess, 
that make up the bulk of the banks that you regulate. There has 
obviously been a recent wave of consolidation. Should we in 
this committee be concerned about this increasing wave of 
consolidation as smaller banks appear to be gobbled up by 
megabanks?
    Mr. Hawke. Let me address the first comment first. It is 
true that of the roughly 2,100 banks that we supervise, an 
enormous number of them are community banks. Probably 85 
percent by number or over 90 percent by number of banks are 
under $1 billion in size of our banks, and half of those are 
under $100 million in size. So we have enormous concern about 
the health of the community banking system in the United 
States, and the great bulk of our people are devoted to the 
examination and supervision of community banks.
    In terms of mergers and consolidation, I think most of 
those acquisitions have not involved smaller community banks. 
The big attention-getting acquisitions have involved mid-size 
and large banks, and I think in many cases community banks have 
been the beneficiaries of some of those transactions. Because 
when a merger occurs it generally opens up new opportunities 
for community banks to demonstrate how much more effectively 
they can serve people in their communities than branches of 
large banks that are headquartered in far distant cities.
    Mr. Hensarling. One of the goals of Gramm-Leach-Bliley, I 
believe, was the goal of bringing down barriers to entry so 
that there would be increased competition in the banking arena, 
greater choices and hopefully the reduction of cost for 
consumers. Now that we have had several years of history, do 
you have any observations as to what extent the law has been 
working to indeed eliminate and lower barriers of entry?
    Mr. Hawke. Well, Gramm-Leach-Bliley certainly did lower 
some of the barriers. I think it is interesting that many of 
the opportunities that Gramm-Leach-Bliley opened up have not 
been taken advantage of. We don't see much interest in banking 
organizations, for example, getting into insurance 
underwriting. There are a few, but that has not been a big 
deal. And we haven't seen much in the way of investment banking 
firms acquiring banks. There is greater latitude for banks 
under Gramm-Leach-Bliley to engage in investment banking 
activities, but many of them were able to do that to a great 
extent even before Gramm-Leach-Bliley.
    So while I would say that Gramm-Leach-Bliley potentially 
opened up opportunities, they haven't been taken advantage of 
to a great extent.
    Mr. Hensarling. My time has expired.
    The Chairman. The gentleman's time has expired.
    The gentle lady from New York, Ms. Velazquez?
    Ms. Velazquez. I am supportive of the OCC's tough actions 
on national bank engaging payday lending, including the 
issuance of cease and desist orders and monetary penalties. 
However, I am concerned that some banks that may be looking in 
the payday lending business will look to other charter types. 
Do you believe that banks are actively gaming the regulatory 
structure to be able to remain in the payday lending business?
    Mr. Hawke. I have heard indications that some of the payday 
lenders that we essentially forced out of the national banking 
system have looked to other banks, and I know the FDIC is 
concerned that payday lenders may be looking to link up with 
banks that they supervise.
    Ms. Velazquez. Can you tell me what can Congress do to 
further limit the ability of banks to establish payday lending 
affiliates?
    Mr. Hawke. Well, the problem has not been so much banks 
establishing the affiliates, it started with the payday lenders 
looking for a way to evade State laws by linking up with 
national banks and holding themselves out as agents for 
national banks under the preemption doctrine. We thought that 
was an abuse of preemption, and that was one of the principal 
reasons that we came down hard on those four national banks 
that had allowed their charters essentially to be rented out to 
payday lenders. That was a clear misuse of preemption.
    Ms. Velazquez. Many financial institutions rely on foreign 
companies to process customer data and staff call centers, you 
know, outsourcing of jobs. Gramm-Leach-Bliley required Federal 
banking agencies to set forth customer safeguarding standards, 
and the OCC has provided specific guidance in this area. How 
does the OCC standards protect customer information that is 
stored abroad?
    Mr. Hawke. That is a very important question and one that 
we are presently very much concerned about. As banks outsource 
data processing activities, for example, that involve 
confidential customer information, we want to make very sure 
that the same kinds of protections apply that would apply if 
the activity was conducted by the bank itself.
    Ms. Velazquez. Does the OCC examine foreign facilities to 
ensure that they meet the OCC's guidelines, and how often are 
such examinations carried out? And are such examinations 
conducted by OCC staff?
    Mr. Hawke. I may be wrong about this, but I don't think we 
have occasion to try to examine overseas a foreign vendor that 
is providing services. If I am wrong about that, we will 
correct the record. There is in U.S. law authority for us to 
examine providers of services----
    Ms. Velazquez. So what do you intend to do?
    Mr. Hawke. Well, I can't tell you--in all honesty, I can't 
tell you exactly where that stands. It is an issue that is 
being considered by our supervisory people right now in the 
context of the concerns about the outsourcing of operations 
that involve confidential customer information.
    Ms. Velazquez. The OCC prohibits national banks from making 
home loans based predominantly on the foreclosure value of the 
collateral. It does not, however, address the more common 
practices of high fees, prepayment penalties, mandatory 
arbitration or loan flipping. As a result, the OCC standard may 
not be strong enough as lending institutions that charge 
excessive fees may strip away an owner's equity but may not 
actually result in foreclosure. Under the OCC standard, it is 
my understanding that these institutions will not be penalized 
for their actions. Given these potential shortcomings, can you 
comment on how the OCC's rules and regulations protect 
consumers against predatory lending practices?
    Mr. Hawke. Yes, I would be happy to. First of all, the 
underwriting standard that you described is, as I said earlier, 
I think lies at the heart of predatory lending. Everybody has 
got their own definition of predatory lending, but the essence 
of predatory lending, I believe, is the unscrupulous actions of 
non-bank mortgage originators who target the equity in people's 
homes and come and push credit out at very high prices that 
strip the fees out in the equity of the house. We have seen 
evidence of that not in the banking system but in the non-
banking system. That is why we put such heavy emphasis on the 
underwriting standard. The underwriting standard is something 
that bank examiners can look at and deal with.
    Now, as far as other practices of the sort that you 
mentioned, we have at the OCC pioneered the use of section 5 of 
the Federal Trade Commission Act, which deals with unfair and 
deceptive practices. And we have taken action against abusive 
practices of a number of sorts that don't involve predatory 
lending as such but that are unfair and deceptive. And we can 
go after situations where under all the circumstances we think 
a bank is engaging in unfair and deceptive practices.
    The Chairman. The gentle lady's time has expired.
    The gentleman from New Jersey, Mr. Garrett?
    Mr. Garrett. Thank you and thank you for being with us 
today. I am going to do the odd thing and agree completely with 
all the statements made from the other side of the aisle with 
regard to the preemption issue. That troubles me as well. That 
troubles me from the last hearing we had when Sue Kelly held a 
hearing. I think back to where we are today comes from where 
our founding fathers established this idea that there was--they 
were suspicious of the tyranny of a central government and a 
central bureaucracy. Always for a good cause is what the 
Federal Government may be doing but with over zealousness it 
may infringe upon the interests of the people back at home. The 
people back at home are closer to the issues. They are supposed 
to be the engines of innovation, as our founders had intended 
it, and now we are going to be, as far as I can see, stripping 
it of that right.
    The questions are the same that I had back then, and I 
haven't heard either from scanning your testimony or hearing 
what you have said so far what is the harm that we are trying 
to address here? What is the exigency, what is the immediacy 
that we have to go forward at this point? What was the 
immediacy that we had to go forward or you have to go forward 
with the regulations when Sue Kelly and other members--I don't 
know if I was on that letter or not--but other members signed 
on to a letter asking for holding back on those regulations 
coming forward at that time? What is the exigency of going 
forward today? And why is it not the purview of Congress and 
not an agency to establish in statute as opposed to regulation?
    Mr. Hawke. Well, let me say, first of all, there is 
obviously a difference of view on this. We don't think we did 
anything radically new. We didn't expand the standards of 
preemption, we didn't expand the areas covered by preemption 
beyond what the courts have repeatedly said or what had been in 
earlier interpretations and rulings that we put out or that are 
embodied in the OTS regulations. I think there has been a lot 
of exaggeration about the effect of our regulations. All we did 
was to codify principles that are long-standing. They go back 
well over 100 years. We did not do anything new.
    And one example of that is when we preempted the Georgia 
anti-predatory lending law, the Attorney General of Georgia was 
asked if he could take us to court and he reviewed the 
precedence and said that he didn't think there was a chance of 
beating us in court on that issue. What we did was completely 
in conformity with law, and it did not change the ground rules 
at all.
    Preemption is a constitutional doctrine and whether we 
codified the preemption rulings in the regulation or not, these 
issues were going to come up in court. They have been coming up 
in court in wholesale numbers. We have had scores of 
litigations over the last decade involving issues of 
preemption. Our banks are faced with the uncertainty of 
litigation as they move into new products and new markets, and 
we have been asked on dozens of occasions to give 
interpretations about the applicability of State laws, and the 
reason we put out our regulation is to try to bring some 
predictability and clarity to long-standing doctrines.
    We did not intend to and we did not in fact change the 
basic rules of preemption or do anything remotely resembling 
what has been attributed to us. So I know there are differences 
of view on that. What we did has been, I think, grossly 
mischaracterized by many people, but what we did was completely 
in conformity with long-standing law.
    Mr. Garrett. You are correct, it is a constitutional issue, 
the issue of preemption, I guess, where some of us said that if 
the courts are making those determinations out there, that 
there should be or should not be in the certain areas, as 
defined--as the courts hear it, then some of us would feel that 
that final arbiter of the decision as to whether you are going 
to go forward and enforce the preemption should be a 
congressional decision as opposed to a regulatory.
    I think I have a little bit of time just to go to one other 
point that was raised, and that is the issue of the 
confidentiality or the privacy of the information going 
overseas. And you gave an answer on it where you said you 
really couldn't speak to it exactly, and I don't want to put 
words in your mouth. Is that because no decision has been made, 
that it is still in the process, what you are saying, as far as 
dealing with it, or just where are we in the process of coming 
up to it, and when will we have a resolution to that part?
    Mr. Hawke. What I meant to say was I just don't have the 
information at hand. We will be happy to follow up with a 
supplemental submission. I know this is an issue that our 
supervisory people have been addressing. The standards that we 
have applied to our banks domestically with respect to 
protection of confidential information will apply, do apply to 
internationally outsourced activities. What I was unable to 
address specifically is exactly what our supervisory people are 
doing with respect to the examination of vendors overseas who 
are engaged in that. And this is a matter that is being 
discussed on an interagency basis.
    The Chairman. The gentleman's time has expired.
    Mr. Garrett. And if you could provide us with that 
information.
    The Chairman. Without objection.
    The gentleman from New York, Mr. Crowley?
    Mr. Crowley. Thank the chairman, and thank you, 
Comptroller, for being here today as well. Regarding the 
national standards for combating predatory lending, one issue 
by OCC prohibits national banks from engaging in unfair or 
deceptive lending practices. As FDC governs these issues, there 
is concern that OCC will not have the authority to identify or 
enforce any unfair or deceptive practices. Can you explain how 
OCC plans to identify, enforce and punish those national banks 
or their operating subsidiaries that engage in unfair and 
deceptive lending practices?
    Mr. Hawke. Well, we do have the authority and until we 
developed it, the concept has sort of been laying dormant 
whether we could enforce section 5 of the Federal Trade 
Commission Act. That is now very well-established and accepted 
by our sister agencies as well. We have instituted a number of 
actions against banks using that authority under section 5 of 
the Federal Trade Commission Act to remedy unfair and deceptive 
practices.
    Information comes to us through a variety of sources: 
Referrals from State law enforcement, our examination process 
and our Customer Assistance Group and just through the way it 
comes to the Federal Trade Commission itself. So I think we 
have plenty of resources to use that authority, and we see it 
as a very potent weapon in our arsenal when we deal with 
abusive practices at our banks.
    Mr. Crowley. Thank you for that. Comptroller, there are 
been a great deal of concern expressed to my office and to 
myself among the State regulators, such as Attorney General 
Spitzer from my State of New York, that the new preemption 
codifying the OCC's recent regulations will lead to weaker 
protections for consumers.
    My question deals with how the OCC will address that 
concern, and in answering the question if you can make 
reference to the First Tennessee case that Mr. Spitzer made 
example of. And in viewing that example, how does the OCC plan 
to rectify that plaintiff, particularly, and how do you plan to 
proactively ensure that that type of situation doesn't happen 
again? What type of penalty do you have in mind for First 
Tennessee if it is decided they committed unfair and abusive 
lending practices? And, finally, how do you plan to conduct the 
outreach to State regulators like Mr. Spitzer to address the 
concerns like the one Mr. Spitzer put forward in his lawsuit?
    Mr. Hawke. Well, I am delighted to answer that because I 
think this goes to the heart of how we cooperate with State law 
enforcement officials. I want to be a little bit circumspect in 
discussing a pending case, but we had a very, very similar case 
to the First Tennessee-First Horizon matter come up last year 
in another bank, in another State. It came into our Customer 
Assistance Group, and one of the people at the Customer 
Assistance Group called the examiner in charge at the bank that 
was having the problem. The examiner in charge walked down the 
hall to the consumer compliance person and said, ``Get this 
fixed.'' And it was fixed overnight and immediately.
    Virtually the same set of facts is involved in the First 
Horizon case. Attorney General Spitzer is using this as a 
vehicle for trying to establish a principle, but as soon as we 
learned about the complaint, which we did when he filed the 
lawsuit, they didn't come to us with a complaint, but as soon 
as we found out we called the bank and said, ``Get this 
fixed,'' and it was fixed. The customer has been made whole, 
the problem is solved and really the case has really no 
vitality left to it. We have not taken any penalty action 
against the bank. This appeared to be the case of a bookkeeping 
foul-up at the bank and a rather obtuse reaction by some lower-
level bank people when the matter was brought to their 
attention.
    Mr. Crowley. In terms of the relationship between yourself, 
the offices and Attorney Generals, how will that work?
    Mr. Hawke. Well, I----
    Mr. Crowley. See, I noticed in your answer there a little 
bit, I won't say resentment, but----
    Mr. Hawke. No, not at all. I had a----
    Mr. Crowley. maybe a little hesitation between yourself----
    Mr. Hawke.----conversation with the Attorney General just a 
couple of days ago and emphasized the importance of our being 
able to work together as we did in the Security Trust case. He 
said he would like to come and visit and I look forward to 
that.
    A year ago, we proposed to the State AGs that we enter into 
a memorandum of understanding for information sharing exactly 
like we have with the State insurance commissioners. And so far 
only one State has picked us up on that--the State of Maine. 
But we remain very hospitable to working out a modus operandi 
with the States that will allow us to share information and 
coordinate and cooperate on enforcement activities rather than 
trip over each other's feet, as we race to take competitive 
actions.
    Mr. Crowley. Thank you, yield back.
    The Chairman. Mr. Murphy?
    Mr. Murphy. Thank you, Mr. Chairman. I want to shift gears 
and go another direction and talk about the Basel court issues, 
as complex as they are. But are the regulators, you, the Fed, 
the FDIC, OTS, any closer to agreement on how to handle the 
operational risk issues in Pillar 2?
    Mr. Hawke. We actually have been together on that issue for 
quite some time. I think there was a perception that there was 
a deep gulf between us, and that largely stemmed from the fact 
that I alone among all members of the Basel Committee was 
arguing that operational risk should be treated under Pillar 2 
rather than Pillar 1. I got nowhere with that argument and the 
Committee moved ahead to include operational risk under Pillar 
1. We then spearheaded the development of what is called the 
advanced measurement approach under operational risk, and the 
Fed has joined with us and the FDIC. And we believe that is a 
very effective way of dealing with operational risk, and we are 
all together on that now.
    Mr. Murphy. There are still some things, though. The 
Federal regulators have undertaken efforts to ensure that banks 
have contingency plans to deal with these unforeseen loss 
issues, but they are costly and will result in pure losses in 
the event of a disaster. But Basel II requires an addition of 
mandatory regulatory capital charge to cover operational risk 
losses. Doesn't this result in some double charge of banks 
seeking to comply with Basel II and the mandates of the Federal 
regulators?
    Mr. Hawke. Well, I think the Committee has been cautious to 
try to avoid double counting and double imposition of capital. 
The operational risk rules should not result in double counting 
of capital as between operational risk and credit risk, 
although I suppose there are some opportunities for spillover.
    Operational risk does exist, and we have seen examples of 
it, and our banks themselves hold capital against operational 
risk. So I think the basic concept of capital against 
operational risk is a sound one. The big question is how we 
measure it and how we calculate that capital, and I think we 
have made tremendous advances in improving the Basel proposal 
on that score.
    Mr. Murphy. Thank you.
    That is all I have, Mr. Chairman.
    Mr. Bachus. [Presiding.] Who is next? Okay. I am sorry. We 
are going in order of, I guess, who first arrived, and I have 
Mr. Scott next. The order on this side, just so as long as 
everybody will know, I have got Mr. Scott, Mr. Bell, Mr. Watt, 
Ms. Carson, Lee, Emanuel, Israel, Maloney, Lucas, Sherman, 
Waters, Moore, Miller and Clay.
    Mr. Scott. Mr. Hawke, why has the OCC not responded and 
answered the letter from my banking commissioner, Mr. Sorrell, 
of August 21 regarding the preemption of the Georgia Fair 
Lending Act? It seems very strange that you took 6 months to go 
section by section and preempt the Georgia Fair Lending Act, 
and yet for 7 months you would not respond to the banking 
regulator's questions on issues regarding that issue. Why is 
that?
    Mr. Hawke. Mr. Scott, you raise an entirely appropriate 
issue. The first I learned that we had not answered the 
commissioner's letter was when the letter came in just a couple 
weeks ago, and I sent him a note back with profuse apologies, 
and I was chagrined upon that we had not answered that. It was 
not the way we usually do business. It was an unfortunately 
glitch and I am very sorry that occurred. That response should 
go out by the end of this week. And I very much regret that we 
didn't meet our usual response time.
    Mr. Scott. But 7 months is a long time. There is a 
purposeful nature to 7 months. And it might be important to 
note that that March 9 letter was cc'd to me and other members 
of the Georgia delegation which might have prompted that 
response. What I would like and humbly ask of you, as we have 
this trouble with letters and that in the previous question and 
answer period with the gentleman from New York you mentioned 
that you had a conversation with the State regulator of New 
York, is that too much to ask that you could pick up the phone 
and to call our commissioner and have a two-way conversation 
much as you have done with other States, especially with the 
fact that our law has been preempted? Could you do that?
    Mr. Hawke. Absolutely, and I will.
    Mr. Scott. Would you like to have his phone number? Could I 
give that to you?
    Mr. Hawke. I have got a crack staff who will find his phone 
number.
    Mr. Scott. Well, please do that because that is very 
important to me. I am the only Georgia congressman, Democrat or 
Republic, serving on the Financial Services Committee, and my 
people in Georgia look to me to raise the issues and most 
importantly to get my State the respect that they deserve. And 
it would go a long way to helping that happen if you would be 
kind enough to pick up the phone and talk to Mr. Sorrell and to 
ask and answer questions and have that dialogue.
    Mr. Hawke. I would be happy to do that, and I couldn't 
agree more about the very unfortunate lapse in our process. I 
am deeply apologetic and I appreciate you raising it.
    Mr. Scott. Very good. Let me ask you a second question on a 
broader issue. On the broader rule that you adopted on February 
12, 2004, Mr. Hawke, let me ask you why did you decide to adopt 
your rule without a public debate on the issue before Congress 
since the rule was rigorously and unanimously opposed by the 
Nation's governors, State legislators, State attorneys general, 
State bank supervisors and consumer organizations, and their 
comments urged public debate and congressional review?
    Mr. Hawke. Well, that is a question that we have addressed, 
and I want to start by saying emphatically that we intended no 
disrespect for this committee or its members. We received views 
on all sides of this issue. We had gone through an extensive 
rulemaking process in which comments were received a wide 
variety of commentators. We believed that the principles that 
were embodied in the regulation were not new despite the 
mischaracterization of the rule, that they were embodied in 
more than a century of precedence. We were seeing uncertainty 
in the marketplace, as I mentioned before, and that was 
impacting our banks' ability to serve customers.
    We saw that in some cases these anti-predatory lending laws 
were impacting on the ability of our banks to provide good 
subprime credit in these markets. The secondary market was 
constricting and banks were moving out of markets. As I 
mentioned earlier, we were facing a high volume of litigation 
and inquiries about these preemption issues, and we felt that 
our banks needed guidance and that we needed to move ahead with 
that guidance.
    And, finally, we thought that it was important that the 
predatory lending standard that we announced in the regulation 
go into effect and that that be out there so that banks would 
have--and I appreciate that people think we didn't go far 
enough with that--but that predatory lending standard that is 
in the regulation is something that nobody else has done and no 
other State or Federal regulators have done, and we believed it 
was important to get that out there and get that into effect.
    Mr. Scott. But you can see why some of us in Congress feel 
that you are stepping on our bailiwick here. It is our 
responsibility to make the laws, to legislate. It is yours to 
regulate, and this kind of action certainly causes alarm on our 
side.
    Let me ask you----
    Mr. Bachus. Thank you, Mr. Scott. Actually, I think you are 
probably about 2 minutes over.
    Mr. Hawke, as you know, some of your critics have charged 
that the OCC was not being sufficiently responsive to consumer 
complaints about unfair or abusive practices at national banks 
and focusing particularly on predatory lending practices. Walk 
us through the process that the OCC follows when it receives a 
complaint that one of its institutions is engaged in possibly 
unlawful conduct or has otherwise mistreated one of its 
customers.
    Mr. Hawke. Well, complaints come in from a variety of 
sources. We get complaints that are discovered in the 
examination process, and we get a very high volume of 
complaints and inquiries that come in through our Customer 
Assistance Group--70,000 a year. Many of those don't relate to 
national banks and we kind of pawn those out to the responsible 
agencies. But that is one way that we learn about practices, 
and when complaints do come in the bank is contacted, the bank 
is asked for an explanation of its conduct, and if we find that 
the bank has engaged in abusive practices, the matter will get 
referred over to our supervisory staff, and it could form the 
basis of enforcement action. That is the way many of these 
things get started.
    Others come up in the routine examination process. We will 
find that a bank is offering a product or engaging in an 
activity that reflects abusive practices, and we will take 
action against them. We have found in the area of credit cards, 
secured credit cards and like products that some banks are 
really engaging in unfair and deceptive practices, not 
predatory lending the way I would describe it, and we go after 
them. We have had a good record of getting judgments against 
them.
    Mr. Bachus. Have you received any complaints that national 
banks are engaged in predatory lending practices?
    Mr. Hawke. We have no evidence that predatory lending is a 
problem in the national banking system. Indeed, there are 
repeated statements by all of the State attorneys general that 
predatory lending is not a problem of regulated financial 
institutions and their subsidiaries, but it is a problem that 
exists in the unregulated financial community, the mortgage 
brokers and the unregulated originators of mortgages. The State 
Attorneys General have stated emphatically that they have not 
engaged in enforcement activities against banks and their 
subsidiaries on predatory lending, they have no evidence of it, 
and we have invited referrals from consumer groups and from 
State law enforcement people on predatory practices at national 
banks.
    I should just add, Mr. Bachus, that last year we put out I 
think what is the most expensive advisory on predatory lending 
that any agency of the government, Federal or State, has put 
out. And I really commend those to the reading of anybody who 
is interested in predatory----
    Mr. Bachus. I am going to take your word for it till I hear 
otherwise. You have mentioned credit card complaints about 
credit cards. Is that the major area of complaints?
    Mr. Hawke. Since most of the credit card operations in the 
country are conducted in national banks, we do become the 
recipient of complaints from credit card customers.
    Mr. Bachus. Are those all funneled through the Customer 
Assistance Group?
    Mr. Hawke. Many of them are.
    Mr. Bachus. Some of them aren't, though?
    Mr. Hawke. Well, some we pick up in the examination process 
directly, but many of them come in through the Customer 
Assistance Group. And if find an unusual number of complaints 
about a particular institution, we will feed that back into the 
examination process to find out what is going on. And we did in 
one case a few years ago we noticed a spike up in complaints 
about a particular institution, and we went back to the 
institution and said, ``What is going on?'' The management of 
the institution didn't even know that they had a problem, and 
we were able to get that fixed in a way that was very 
beneficial not only to the customers but to the management 
itself.
    Mr. Bachus. What I am hearing, and let me ask you if you 
are hearing the same thing, I am hearing constituents complain 
that they will get their credit card bill and from the time 
they get it to the time they have to pay it is not 30 days, it 
is not 25 days, it is 14 days or 17 days or the cycle's been 
shortened. Are you getting a lot of complaints of that nature?
    Mr. Hawke. We have gotten complaints of that sort, and 
those issues have been addressed on an interagency basis in our 
account management guidance, a number of practices of that 
sort.
    Mr. Bachus. Have been stopped?
    Mr. Hawke. I can't represent to you that they have all been 
stopped, but we put out pretty strong guidance to our credit 
card banks to avoid abusive practices of that sort.
    Mr. Bachus. Has any enforcement action been taken against 
banks who may have been engaged in----
    Mr. Hawke. I am not aware of any enforcement action as such 
that we have taken against them, but in some cases it is like--
our objective is to make clear what the ground rules are for 
our credit card banks. There are problems that are reflected in 
these consumer complaints, and we have had meetings with our 
credit card banks and told them that they have got to get these 
things fixed, because, among other things, they are inviting 
additional regulatory legislation that will impose a remedy on 
them that they ought to be concerned about.
    Mr. Bachus. And I can tell you that that is some of the 
most enraged calls that I receive that are received to me from 
other members of, say, the Alabama delegation or what they 
consider an arbitrarily short period to respond to the credit 
card bill coming in. And I would like maybe if you could supply 
me with what those guidelines are.
    Mr. Hawke. We would be happy to.
    Mr. Bachus. I think my time is--well, actually, is the 
light still on? Okay. All right.
    Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman.
    Welcome, Mr. Hawke. I would have to say that I have 
listened very intently to your testimony this morning in very 
great detail and come away very disappointed in several 
respects. First is in your failure to acknowledge that the OCC 
has overstepped even in the face of all of the opinion of this 
committee that you have in fact overstepped. Second, in your 
insistence that what the OCC did was not a dramatic change even 
in the face of everybody in the industry saying that what you 
did was a dramatic change.
    In your, to me, inconsistent positions that it was 
absolutely imperative that your predatory lending standards be 
announced and it be gotten into, that these standards be out 
there, yet the other side saying that everybody is saying that 
there is no problem of predatory lending with national banks, I 
am perplexed about that. Your statement that banks were 
withdrawing from markets yet doesn't seem to square with this 
notion that there was no problem of predatory lending.
    And then your most recent statement, something about 
regulatory legislation, which to me--well, I guess it happens 
all the time that there is regulatory legislation. I think the 
problem that we are having on this committee is that you are 
setting standards here that we believe are the prerogative of 
Congress to set and that you are misapplying the standards that 
have been set.
    I have looked at the wording of the Barnett case that set a 
standard which says prevent or significantly interfere with the 
national banks exercise of its powers. That is the language 
that the case law uses. The rule that you put out says 
obstruct, impair or condition a national bank's ability to 
fully exercise its Federally authorized powers. Do you read 
those two statements, the legal standard that the court set and 
the standard that the OCC set in its rule, to be one in the 
same?
    Mr. Hawke. When you look at the whole string of Supreme 
Court and other Federal court precedence relating to 
preemption, and they go back well over 100 years, the language 
in our regulation reflects what has been said in those cases.
    Mr. Watt. So you are saying that the language that I just 
read that those two set of languages say exactly the same 
thing?
    Mr. Hawke. Well, I think when you look at the Barnett case 
as a whole, it does talk about conditioning the exercise of 
powers. But this is an issue that goes back to----
    Mr. Watt. Well, I understand that it goes back a long time, 
but I mean I think what you have done is--maybe all you were 
doing was codifying your thinking about it, but in the process 
of codifying it by regulatory standards you have certainly hit 
a bunch of nerves that nobody thought you were regulating in. 
Let me just point up one of those that is troubling to me.
    One of the areas that your regulation says you are going to 
deal with is regulating abandoned or dormant accounts. Now, 
North Carolina has an escheat laws. Does the OCC have some kind 
of escheat law?
    Mr. Hawke. We did not affect escheat laws at all.
    Mr. Watt. Well, what does it mean when you say regulating 
abandoned or dormant accounts?
    Mr. Hawke. Let me explain, Mr. Watt. There are two Supreme 
Court cases that deal with escheat laws, and the law is very 
clear, that state escheat laws apply at the national banks and 
are not preempted so long as they provide a due process 
opportunity for customer to raise--for the owners to raise 
claims.
    Mr. Watt. So does that not condition a national bank's 
ability to act or does it significantly interfere with it? I 
mean which one of those does it do? I mean----
    Mr. Hawke. We made clear in the regulation that--the 
regulation simply reflects the Supreme Court precedent. Where 
there is no due process provided in the State law, it is 
preempted. That is what our regulation says, that is what the 
Supreme Court has said.
    Mr. Watt. No due process in predatory lending law when we 
don't really have a predatory lending standard at the Federal 
level, and you have got to write a regulation that tells what 
the standard is?
    Mr. Bachus. I think he is talking about the escheat laws.
    Mr. Hawke. I am just talking about escheat laws.
    Mr. Watt. Well, I am talking about the whole range of laws 
here. I am trying to figure out where it is in this context 
that the OCC feels like it has authority to start articulating 
what the law is at the Federal level when there is no law?
    Mr. Hawke. Well, Mr. Watt, I have taken an oath to support 
and defend the Constitution of the United States, just as every 
elected representative has, and I have to apply our best 
judgment about what the Constitution provides in the area 
preemption. These are constitutional----
    Mr. Watt. So when the Congress tells you that you have 
overstepped and you have applied a standard that is different 
than what the Congress says is the standard, you are going to 
say, ``Well, this is my standard, and I haven't overstepped. I 
am not doing anything dramatically different than has been my 
prerogative all along.'' Who is the OCC?
    Mr. Hawke. Well, I firmly believe that to be the case, that 
we have not done anything different, that we have not 
overstepped our bounds. We have been involved in dozens of 
pieces of litigation involving preemption issues over the 
years. We consistently win these cases. Our views on preemption 
are constantly reinforce by the courts. Congress, obviously, 
can change any of those rules, and I think that the States 
recognize that preemption is a well-established doctrine.
    When the Georgia legislature passed the Georgia preemption 
anti-predatory lending law, they had a provision in it saying 
that if this law is preempted for national banks, it will also 
fall for State banks. And they were expecting, they were 
anticipating that the normal doctrine of preemption would 
preempt the applicability of that law for national banks. And 
the State Attorney General said that he didn't see any prospect 
of overturning our judgment on that score. So I don't think 
this was really a close issue in terms of whether we were 
reading the existing law correctly.
    Mr. Bachus. Thank you.
    Ms. Kelly?
    Mrs. Kelly. Thank you. First, I want to thank Mr. Oxley for 
his recognition of how important this issue is to the American 
people and for bringing this issue to the attention of the full 
committee. As you know, several weeks ago, this committee 
passed a resolution that expressed serious concerns with the 
rules the OCC had finalized.
    And, Mr. Hawke, I want to thank you for fulfilling your 
promise to me that you would appear here. I thank you for 
appearing here today.
    Mr. Hawke, I recently read an article in the American 
Banker in which you made some very dismissive remarks about the 
New York State Attorney General and banking superintendent 
relating to their concerns with these rules that you finalized 
on January 7. Your comments and what appears to be a dismissive 
attitude towards the concerns that we have in the banking 
structures of New York are not constructive and they make it 
very difficult for some members of this committee to have 
confidence in your stewardship of the OCC with regard to these 
regulations--one of the reasons why I have asked today for a 
GAO examination of the implications of your regulations on 
consumer protections as well as the process by which you 
arrived at these rules.
    I hope that as we move forward in reviewing the OCC 
activities, you will demonstrate a greater recognition of the 
concerns expressed by the officials in my State and in these 
other States, as you have heard today, who genuinely believe 
that these regulations will have a negative impact on consumer 
protections and on the dual banking system.
    Mr. Hawke, I would like you to answer a few questions and I 
want numbers only. No discussion because these are very simple 
questions. How many full-time people does the OCC have 
specifically devoted to customer service?
    Mr. Hawke. We have got about 40 people who----
    Mrs. Kelly. Full-time?
    Mr. Hawke. Forty full-time people who man our Customer 
Assistance Group in Houston, but that is not the only way we 
deal with it.
    Mrs. Kelly. I didn't ask that. I asked for a number, sir. 
How many full-time people work on regulatory work?
    Mr. Bachus. Ms. Kelly, I think he is saying that he didn't 
know. That is not the total answer to the----
    Mrs. Kelly. Well, I know what he is going to say, and so I 
have already discussed it with him and it is in his testimony 
if you look at the graphs.
    Mr. Bachus. I am just saying that he may--in fairness to 
the Comptroller----
    Mrs. Kelly. Well, are you going to give me more time since 
you are taking my time?
    Mr. Bachus. I will. I will, Ms. Kelly, but what I am saying 
I think he was saying that is not all the people. I don't know 
if you were asking about----
    Mrs. Kelly. Fine. Mr. Hawke, finish your answer.
    Mr. Hawke. My answer was that we have 40 full-time people 
at Customer Assistance Group who are the initial in-take for 
tens of thousands of customer complaints, and we have 1,700 
examiners and 100 examiners who are devoted to consumer 
compliance.
    Mrs. Kelly. Well, quite frankly, I asked you about customer 
service only, so you didn't need to amplify the answer.
    Mr. Hawke. They all deal with the resolution of customer--
--
    Mrs. Kelly. I am only interested in what you have dedicated 
solely full-time to customer service. That is 40 people if I 
understood your answer. Now, how many people----
    Mr. Bachus. Ms. Kelly, he actually said that some of the 
other staff is----
    Mrs. Kelly. I understand that, but I am trying to get at my 
next question, which is how many full-time people work on the 
regulatory work, just the regulatory work?
    Mr. Hawke. Well, I am not sure how to characterize that, 
Ms. Kelly. The----
    Mrs. Kelly. Well, just give--how many people are in the 
regulatory work?
    Mr. Hawke. Lawyers who work on regulatory matters, my Chief 
Counsel advises me that we have got 20 lawyers who work on 
regulatory matters.
    Mrs. Kelly. Thank you, Julie. How many people do you have 
working solely in enforcement?
    Mr. Hawke. We have got 100 compliance examiners who 
specialize in assuring compliance with consumer protection 
laws, the several dozen consumer protection laws that we have, 
and we have probably got a couple of dozen lawyers in 
Washington and throughout the system that work on enforcement 
and compliance cases.
    Mrs. Kelly. I am going to wait for Julie to hand you that 
paper.
    Mr. Hawke. Well, Julie tells me I understated it. We have 
got 25 lawyers in Washington in enforcement and compliance, 25 
more in the districts and 10 others in consumer and community 
relations.
    Mrs. Kelly. Okay. So it is 25 in D.C., 25 in the districts, 
and how many more?
    Mr. Hawke. Ten.
    Mrs. Kelly. Ten, 10 more. Okay. What was the specific 
caseload for each full-time examiner last year?
    Mr. Hawke. I will be happy to provide that, Mrs. Kelly, in 
a follow-up. I don't have that number at my fingertips.
    Mrs. Kelly. With this change, what will be the specific 
caseload for each full-time examiner this year?
    Mr. Hawke. Mrs. Kelly, there will be no change as a result 
of the regulations that we put out. And that is one of the 
great misconceptions about what we did. The regulations, 
despite the difference of views, and I respect the fact that 
our colleagues in the States have different views on this, our 
regulations codified the long-standing existing rules. They 
will not result in a significant--in any change in our 
workload. I think that is a specious argument that is being 
made by those who have an interest in attacking our position on 
preemption.
    Mrs. Kelly. I would be interested, sir, in the number, and 
if you would break it down in terms of who is detailed to the 
national banks and who is detailed to operating subsidiaries. I 
would also like to know what the specific caseload is for every 
full-time employee assigned to your Customer Assistance Group.
    Mr. Hawke. We will be happy to provide that information.
    Mrs. Kelly. I think that I may have an answer for that. I 
have an article here from the American Banker quoting Sheila 
Bair, a former Treasury Department official who is now a 
management professor at the University of Massachusetts. She 
states, and she may not be correct, which is why I was trying 
to find out if you had a different figure, she said the study 
says--her study says that the OCC has 921 consumer complaints 
for every full-time employee assigned to its Customer 
Assistance Group. I just didn't know what that number was that 
you have assigned. She also points out that the OCC has very 
high workloads for complaint processing. She says, and I quote, 
I think that does underscore that the OCC really needs to beef 
up their complaint-handling ability.
    My concern here is we need to make sure that the people who 
are involved in our banking system, their customers, have 
answers to their questions and have their complaints handled in 
a timely manner. She quotes in the study that the FDIC has 111 
complaints per person involved, and the Federal Reserve has 
124. At 921 consumer complaints for every full-time employee, 
that is a lot. I don't know what number she is using there. I 
would like you to answer if you do know what the number she is 
using, and if you don't, if you can get back to me, I would 
appreciate it.
    Mr. Hawke. I would be happy to answer that question, 
because as much as I love Sheila Bair, she really does not know 
what she is talking about here. The numbers that she gives are 
relatively accurate. I am willing to accept that they are 
accurate. But she takes no account of the efficiency of these 
operations. If you take the 111 or 124 complaints per FTE that 
the Fed and the FDIC have, that works out to about 1 complaint 
every 2 days. That is what their ratio is. And ours works out 
to about four complaints a day. So the people that we have 
processing cases in our Customer Assistance Group handle, on 
average, about four complaints a day, based on the ratio of 
complaints to full-time staff.
    You can't simply take bare bones numbers like that and make 
conclusions about the quality of workloads or the need for more 
people. So I think it was gratuitous of her and uninformed to 
make the conclusion that she did. We constantly review the 
workload in our Customer Assistance Group. We review it in our 
budget process, we are presently looking at it. If the workload 
down there appears that we need more people, we will devote 
whatever resources are necessary to handle the workload. We 
have not had workload complaints about that operation. It has a 
highly efficient operation, it is highly automated, we have put 
technology to great use down there.
    I think it is a world-class operation that ought to be a 
model for customer assistance groups any place, and we have 
invited our colleagues at the States to come down and look at 
it. Taking bare bones numbers of the sort that Sheila did and 
drawing conclusions about workloads is totally inaccurate and 
uninformed, and I am sorry that she jumped to that conclusion.
    Mr. Bachus. Thank you.
    Mrs. Kelly. I think I am entitled to a little more time 
since I have been interrupted so often.
    Mr. Bachus. Well, actually, you are----
    Mrs. Kelly. Mr. Hawke, I appreciate if what you said is 
true----
    Mr. Bachus. You are 5 minutes over.
    Mrs. Kelly. Just let me finish, please, my sentence.
    Mr. Bachus. Well, I think the record is pretty clear----
    Mrs. Kelly. I think that I am entitled to that.
    Mr. Bachus.----that he doesn't agree with Mrs. Bair's 
assessment of the complaint-handling capacity.
    Mrs. Kelly. I think it will come as a bit of a stunning 
comment to the American Council of Life Insurers and the 
University of Massachusetts that you think that Ms. Bair is 
inaccurate in her numbers, which is why I actually wanted 
numbers from you and I would hope that you get back to the 
Committee and give us numbers to--if you think these are in 
error, give us some numbers that are not in error so that we 
can know what the facts are.
    Mr. Hawke. I am not disputing the accuracy of the numbers. 
She got those numbers from us. What I am disputing is the 
conclusions that she draw gratuitously from the numbers. I 
think the numbers prove quite the contrary, that ours is a very 
efficient operation and that when you look at the number of 
complaints per FTE at the other agencies and look at what that 
implies as to the number of complaints that they can handle 
during the course of the year, it averages out to about one 
complaint every 2 days. And I don't think that evidences a 
great deal of efficiency in the operation. Ours averages out 
about one to four and a half complaints a day, and I think that 
is because we run a very efficient operation.
    Mrs. Kelly. Perhaps you could give us some numbers then. 
Thank you.
    Mr. Bachus. Thank you.
    Ms. Waters?
    Ms. Waters. Thank you very much.
    First of all, let me thank you for being here, Mr. Hawke. I 
appreciate the work you have done over the years particularly 
on payday loans and the effort that you have put forward, and 
that is very important to me. I am sitting here listening very 
carefully to my colleagues, and I think you are in a little 
trouble here. And I am wondering why you are pursuing this at 
all.
    I am curious about a few things. You have cited your 
reasons for believing that you have the authority and it is 
based in the Constitution. You have explained to us you have 
all of these enforcement resources--1,700 examiners, 300 people 
on-site permanently and others. I think another group of 100 
are involved with consumer protection and consumer complaints.
    I want to know then, given all of that, how many national 
banks or operating subsidiaries have been cited by the OCC for 
engaging in abusive real estate lending practices? And I am 
asking that question because when we take a look at the web 
site, the OCC's web site lists only five enforcement actions 
taken against national banks for abusive consumer practices 
since 2000. Three of these actions involve credit cards, and 
two focus on small short-term lending. In contrast, State 
banking supervisors and attorneys general's offices brought 
thousands of consumer actions during this period. So how do you 
justify given all the resources, the authority this preemption 
that you are insisting makes good sense?
    Mr. Hawke. Well, I don't know what the thousands of actions 
are that the State AGs brought. We have seen very little 
evidence of State AGs bringing actions against national banks, 
largely because Federal law says that they don't have the 
authority to do that. I will have to get back to you on the 
number of actions against operating subsidiaries.
    I think it is important to recognize that when we examine 
our banks we really don't distinguish between the bank and the 
operating subsidiaries in terms of the activities that they 
engage in. If a bank is engaged in the mortgage banking 
business and they carry it out in an operating subsidiary, we 
examine that as a unified operation. So if we take action, we 
may take action against the bank or we may take it against the 
bank and its subsidiary as well. But I----
    Ms. Waters. I am trying to find out where you have been 
effective or how you have been effective in this area. For 
example, I remember with Wells Fargo out in California there 
was a case brought by the State of California because Wells 
Fargo was charging interest before they registered the loans or 
something like that. And that was not an action that you 
discovered; that was an action by our State. And then I am 
looking at this Wachovia case here. That is an action by, I 
think, Connecticut and maybe one other State. So what are you 
doing? I mean----
    Mr. Hawke. The Wells Fargo action involved a statute that 
does not apply to national banks and was so held by a Federal 
court in California. The Connecticut action raises a similar 
question; that is, whether an operating subsidiary of a 
national bank is subject to the same preemption rules as the 
parent bank itself. That was involved in the California case, 
it is involved in the Connecticut case which is a pending 
decision now. There are two decisions in California that have 
upheld our position on the inapplicability of that law that you 
referenced to national banks.
    Ms. Waters. That was brought to your attention by 
California, though; is that right?
    Mr. Hawke. It was brought to our attention I believe by 
Wells Fargo, because the issue arose as to whether that statute 
could constitutionally apply to a national bank. This is one of 
the reasons that we felt that it was important to codify these 
preemption principles in a regulation, because there is a great 
deal of uncertainty created by laws of exactly that sort, 
whether it applies to national banks or not. And in that case, 
there were two cases out there in which the court said that 
that law did not apply to national banks or their operating 
subsidiaries.
    Ms. Waters. Well, I guess what I am really getting at--and 
I understand how you can get involved with the question of who 
has the authority at some point. I guess what I am getting at 
is who is initiating the complaint with these kinds of cases? 
You say Wells Fargo. They may have come to you to ask about the 
authority, but I believe that it is the State of California to 
say, ``Something's wrong here. You shouldn't be doing this.''
    Mr. Hawke. The Corporation Commissioner raised that issue--
--
    Ms. Waters. Yes, of course.
    Mr. Hawke.----with the Wells Fargo Home Mortgage Company, 
and that raised the preemption question, whether that law 
applied. And it was determined that that law didn't apply, so 
there was no enforcement action taken in that case.
    Ms. Waters. The question remains, in my mind, whether or 
not--well, I am convinced that the State should not be 
preempted. I don't think you can do better than North Carolina, 
for example. I mean I wish every State could adopt the anti-
predatory laws that North Carolina has adopted, and I think you 
would agree that there is nothing in your regs that could do 
any better than North Carolina. Wouldn't you agree to that?
    Mr. Hawke. No, I don't agree, with great respect, Mrs. 
Waters, because these laws and the North Carolina law is one 
example of this that have had adverse unintended consequences 
that I think all Members of Congress should be concerned about. 
They have resulted in and threatened further constriction of 
the availability of subprime credit--good, non-predatory 
subprime credit.
    The subprime credit markets have expanded in recent years. 
They have been one of the reasons that home ownership in the 
United States is now at a record high level. Credit markets 
have opened up to people particularly in minorities that have 
not had access to credit before because of the advances in the 
subprime credit market. And what has happened with some of 
these predatory lending laws is that they have constricted the 
availability of subprime credit. When the New Jersey law was 
about to go into effect last November there was a story in the 
American Banker that said that subprime lenders plan to reduce 
their involvement in the subprime markets in New Jersey by 70 
percent because of the New Jersey anti-predatory lending laws.
    Ms. Waters. Well, let me just say this, Mr. Hawke. We don't 
have time to debate it, my time is up, but I can tell you even 
though you give high praise to the subprime market, and some 
are very good, some bankers are very good at this, but we have 
discovered that a lot of minorities who have gotten these 
subprime loans were eligible for prime loans anyway and should 
have been getting them anyway. I mean that is one of the things 
that is come out of this. And then, of course, there is the 
whole story of the foreclosures, and we don't have time to 
debate it at this time.
    I guess my concluding remarks are that I think you are in 
trouble on this issue, and no matter what happens in the court, 
the Congress of the United States can still legislate and then 
whoever would like will try and rule it unconstitutional, but I 
think that is where we are headed.
    Mr. Hawke. I should just add, Ms. Waters that the question 
you raise about switching people to higher rate credit where 
they are eligible for prime credit is one of the issues that we 
addressed in our predatory lending guidance. That is something 
that we are concerned about, and we have admonished banks not 
to engage in that practice. And if we find that that is 
occurring, we will go after them.
    Ms. Waters. We will see.
    Mr. Bachus. Thank you. Thank you, Ms. Waters. It goes from 
one side to the other. I am just going to take about 30 seconds 
before I recognize Congressman Miller, though. But I will say 
this, not in the form of a question, but I think the best news 
that I have heard this morning, Comptroller Hawke, is that you 
don't have any evidence that any of the national banks are 
engaged in predatory lending practices. I think I am correct if 
that is what I heard.
    Mr. Hawke. That is what all the State attorneys general 
say.
    Mr. Bachus. That is right. And I have heard no evidence to 
the contrary myself, nor have I heard any today. I have not 
heard any members accuse any of the banks in engaging in those 
standards.
    And I will say just for the record that my belief is that 
the preemption regulations issued in final form by the OCC in 
February contain strong standards for national banks to follow 
in avoiding predatory or abusive lending practices. Number one, 
there doesn't appear to be any, among the national banks, any 
predatory lending practices. That may prove to be wrong or they 
may start, but I think what you are telling this committee is 
that you have in place what you feel is sufficient assets and 
sufficient personnel to handle complaints and to process 
complaints and investigate them.
    Mr. Hawke. That is correct, Mr. Chairman. And, in addition, 
we have put out very strong, extensive admonitions to our 
banks, not only about avoiding getting involved in predatory 
lending but having policies to make sure--and controls to make 
sure that they don't purchase predatory loans that are 
originated by others. And there is no other banking agency that 
has done anything remotely comparable to that guidance.
    Mr. Bachus. Fine. Thank you.
    Mr. Miller?
    Mr. Miller of North Carolina. Thank you, Mr. Hawke. You 
just said that what you have done has led to a diminution of 
availability of credit and subprime marketing to lower income 
borrowers. There was one study, I think, in Colorado that said 
that there was a diminished volume, but then there was a later 
study by the Kenan-Flagler School of Business, University of 
North Carolina that said the only diminution in volume was of 
the bad loans, the ones that were being flipped repeatedly and 
that in fact, according to that academic study, that there was 
only a reduction of loans with predatory terms and that there 
was no restriction of access or increase in the cost of loans 
to borrowers with blemished credit.
    Morgan Stanley, fairly reputable outfit, concluded a survey 
in 2001 that I believe was published, that the tougher 
predatory lending laws had not reduced subprime residential 
lending volumes in any significant way. Inside B&C Lending, 
which is apparently a leading trade journal, found that top 
North Carolina subprime lenders have continued to offer a wide 
variety, full array of products for borrowers in North Carolina 
with little or no variation in rate compared to other States. 
North Carolina commissioner of banks, Joseph A. Smith, said 
that they had not had a single complaint about the lack of 
available credit because of this law. The North Carolina 
bankers supported this law.
    What is your authority for saying that North Carolina law 
had led to a diminished availability for credit to subprime 
borrowers?
    Mr. Hawke. Well, there are several studies that deal with 
the effect of the North Carolina predatory lending law, and 
there is some debate among the academics about the----
    Mr. Miller of North Carolina. Can you get those to me?
    Mr. Hawke. I would be happy to.
    Mr. Miller of North Carolina. Please, because I haven't 
seen them. I have been looking.
    Mr. Hawke. I would be happy to provide them. I think they 
are referred to in my written testimony, but subprime lending 
went down in North Carolina after the advent of the law 
compared to----
    Mr. Miller of North Carolina. Well, have you examined the 
North Carolina School of Business study? Have you examined 
that? Has anyone in your office examined that?
    Mr. Hawke. The so-called Stegman study. Yes, we have 
examined that very carefully. That has been the subject of a 
lot of criticism by third parties who have no ax to grind that 
it was methodologically flawed, because it dealt with 
securitizations and it didn't look at loan originations. I 
would be happy to give you----
    Mr. Miller of North Carolina. Please give me those studies. 
Please give me those studies. I would love to see it, because 
there seems to be a heavy volume on the one side saying that 
the law has worked, it has produced predatory terms but not the 
availability of credit, but in fact home ownership purchase 
money loans in the subprime market have increased. That is 
obviously the kind of money we want to make available. That is 
increased. And the only thing that is gone down is the volume 
of loans because of flipping and loans that have predatory 
terms.
    There have been a lot of questions and a lot of testimony 
today about your resources for compliance and enforcement. Ms. 
Waters referred to thousands at the State level. The 
information I have got, and I know this doesn't apply to 
national banks, but the State bank supervisory agencies in 2003 
initiated 20,332 investigations in response to consumer 
complaints, which resulted in 4,035 enforcement actions. How 
many enforcement actions did the OCC bring in 2003?
    Mr. Hawke. I will have to furnish that information to you, 
but in 2003 we did process 70,000 complaints from consumers, 
most of which got resolved without enforcement action because 
our Customer Assistance Group is very effective in getting 
remedies for individuals who raise questions. They solve every 
day thousands of problems that customers have raised with their 
banks.
    Mr. Miller of North Carolina. Okay. Please, if you could 
get me the number of enforcement actions, that would be very 
helpful as well.
    And you also said you had ample rulemaking authority under 
section 5 of the FTC Act.
    Mr. Hawke. No, we don't have rulemaking authority under 
the----
    Mr. Miller of North Carolina. But you can apply that.
    Mr. Hawke. We can apply it on a case-by-case basis. The 
Federal Reserve has the exclusive rulemaking authority.
    Mr. Miller of North Carolina. All right. And my 
understanding is in the last 30 years since they have had that 
rulemaking authority that they have promulgated two rules 
pursuant to that authority?
    Mr. Hawke. Right. That is exactly why we moved forward to 
use our authority to issue cease and desist orders in 
individual cases without the benefit of a rule, and we have 
probably had--since we asserted that authority, we have 
probably had 10 or 12 cases where we have used that very 
effectively.
    Mr. Miller of North Carolina. Well, let me ask you about 
some specific practices that I know are happening right now and 
whether you regard those as being violations of--prohibitional 
unfair and deceptive trade practices. Single premium credit 
insurance is non-refundable.
    Mr. Hawke. I think you can't simply take a practice out of 
context and say without benefit of the rule that----
    Mr. Miller of North Carolina. So I am getting a firm maybe?
    Mr. Hawke.----it is automatically unfair and deceptive.
    Mr. Miller of North Carolina. All right. Moving on, we 
heard testimony in this room, 2 subcommittees of this 
committee, 2 days ago of lower income borrowers coming away 
from the closing knowing what they are getting, how much money 
they are getting at closing, knowing how much money they are 
paying a month but finding out sometime later that the page 
after page after page of legally gobbledy-gook amounted to 
something like $20,000 or $30,000 in points and fees built into 
the loan. And they have discovered that the equity in their 
home, their life savings when they tried to sell their home or 
when their children did when they died that their equity was 
largely gone, their life savings was largely gone. They didn't 
even know that it happened. Are you now pursuing any kind of 
advisory to prevent that from happening? Are you encouraging 
any rulemaking on that point? Do you think existing law 
prohibits it? What are you doing about it?
    Mr. Hawke. In our advisory on predatory lending, we 
identified a number of practices that frequently accompany 
predatory lending activities, and we told our banks that if we 
found any evidence of it in the banks, we would come after them 
with remedial orders and restitution orders.
    Mr. Bachus. Okay. Thank you.
    Comptroller Hawke, I am concerned that you have been here 
since quarter after 10, and that is a mighty long time for you 
to be in the chair. Mr. Israel and Mr. Gutierrez both want 
either 5 minutes or whatever. We have been going over. Do you--
--
    Mr. Hawke. I am fine.
    Mr. Bachus. You are fine. Okay. All right.
    Mr. Israel?
    Mr. Israel. Thank you, Mr. Chairman, and thank you, Mr. 
Hawke, for hanging in for as long as you have. I do have a 
question for you. You dealt with it in a limited way prior. But 
before that I just want to clarify one important point. I was 
going to make this point in an opening statement but in the 
interest of the Committee's time, I deferred.
    As you know, this is the only time that the full committee 
has met to address this issue, and during consideration of the 
budget views and estimates we were asked to vote on an 
amendment that questioned the OCC's ability to implement this 
rule under your budget. I supported that amendment because I am 
a blue dog and I believe in fiscal responsibility and budget 
accountability, and I believe that we have to make the budget 
process and your budget process as accountable as possible.
    But I don't want anyone to interpret my vote on that 
amendment as opposition to the rule itself. I believe that 
there is a very strong case to be made that these regulations 
will help preserve the dual banking system. And without Federal 
preemption national banks would be subject to State and local 
laws and the distinctions between State and national banks 
clearly would disappear. And that was not Congress' intent in 
establishing Federal banking charters and a Federal regulator, 
which leads me to my question.
    I have listened carefully to opponents of this rule as they 
have argued that it will in fact limit the effectiveness of 
State laws and consumer protections. I believe that I am a very 
strong advocate for consumers in my district and around the 
country. I also believe that different levels of government 
have different resources and capacities and capabilities to 
enforce consumer rules and regulations that offer the most 
vigorous and expansive protection of consumers. Everybody has 
their own tools and toolboxes and collectively that is the 
strongest mechanism for enforcing consumer protection.
    Some have said that you do not have enough tools in your 
toolbox, that your toolbox just isn't big enough to protect 
consumers and enforce consumer protection laws and that it is 
impossible for the OCC and State regulators to work in 
conjunction with each other. You have dealt with that several, 
maybe hours ago, but you have dealt with that prior in this 
hearing.
    I just want to ask you for the record to reassure me, as 
someone who believes strongly in consumer protection, that you 
have the numbers and the qualifications and sufficient 
resources to work with State regulators and to enforce the law 
and protect our consumers.
    Mr. Hawke. Absolutely. I have an absolutely strong 
conviction that we do. I believe that our resources are very 
significant. We have a very rigorous budget process, and our 
budgets have been well-balanced. We have got all the resources 
we need to put into this. The issue is, I think, is how we best 
cooperate and coordinate with State officials so that we are 
not competing to see who can get to the court first on these 
issues but that we refer matters back and forth.
    We have the ability with bank examiners--bank examiners 
have a special relationship with banks, and when a bank 
examiner comes into a bank and says, ``I want you to fix 
something,'' they get--by and large, they get very quick 
responses. And it is a lot more effective for us to use the 
examination process to cure some of these problems than to have 
somebody go into court and initiate a proceeding that is going 
to drag on for years at great expense to everybody.
    So if we could find a modus operandi where if Attorney 
General Spitzer has a complaint, for example, against one of 
our banks or a subsidiary of our bank, if he would let us know 
about it instead of filing a lawsuit, we could get the matter 
fixed, as we did in the case that is presently pending. I think 
cooperation is the best way to achieve what we all want for the 
protection of consumers.
    Mr. Israel. OCC currently has how many employees?
    Mr. Hawke. We have got about 2,800 employees.
    Mr. Israel. How many are bank examiners?
    Mr. Hawke. Seventeen hundred are field examiners. We have 
another couple hundred who are in management positions.
    Mr. Israel. Thank you, Mr. Hawke.
    And I yield back the balance of my time, Mr. Chairman.
    Mr. Bachus. Thank you, Mr. Israel.
    Mr. Gutierrez?
    Mr. Gutierrez. Thank you very much, Mr. Hawke, for being 
with us here this morning. I guess I just want to go over a few 
things and then, once again, implore you and your good offices 
to sit down with everyone and work this stuff out, because I 
just want to make it clear and put it on the record that you 
cite your authority as being 140 years old, going back to the 
Civil War and the National Bank Act. And as I shared with you 
in my office, if that were true, then you would be guaranteeing 
the money that the Mint today produces as really a one dollar 
bill, a five dollar bill. You no longer do that, nor do you 
have that authority. The Mint has that authority.
    And I guess I would be writing to you and your examiners on 
April 15 because you would have the authority under that law to 
collect my taxes. But I don't deal with you or your bank 
examiners, although I might like that to be the case that I 
would be audited. I think you would probably be a fair arbiter 
of what my taxes would be.
    And I mean it would be so sensational, Mr. Chairman, Mr. 
Bachus, that if you were representing Alabama, citing the Bank 
Authority Act, you would be calling President Jefferson Davis 
and I would be calling President Lincoln. That is how far back 
this goes in terms of what you are citing. Obviously----
    Mr. Bachus. I don't think we had telephones back then.
    Mr. Gutierrez. I am sorry.
    Mr. Bachus. I don't think we had telephones back then.
    Mr. Gutierrez. You would be riding on a horse and so would 
I to call our respective presidents of this country.
    So I think that is pretty old precedent. Things have 
changed since then, and the authorities you had and that you 
cite under that act have changed dramatically. Well, I don't 
know that I would pay my taxes to you under that legislation 
nor did the Federal Reserve banks and board exist at that time. 
Things have changed and our Federal banking system has changed 
since then.
    And so we can argue and debate the merits of one thing or 
another, but there is a quote from the Wall Street Journal, 
which Mr. Frank has put in the record, that says, it is a quote 
of you, ``It is one of the advantages of a national charter, 
and I am not the least bit ashamed to promote it.'' So I know 
you promote national banks. I guess as a former representative 
of a local where we think we do things well, that is at the 
State level, whether it is Illinois or Georgia or North 
Carolina, we think we do things well.
    Can't we not--because I believe that the Congress has 
shared with you, and many congressmen from both sides of the 
aisle have shared with you this morning and on various other 
occasions that we disagree. So there are a couple of options 
when you have a disagreement, right? One is that Congress can 
take actions, which you have said, ``Please go ahead.''
    But I think that reasonable people--because I want to say 
this for the record: I think what the OCC does is a great job. 
We are not here to say you are not doing a great job. But I 
think there are other institutions that can help and that 
States now have abilities to help the consumers. It is not an 
either-or. Maybe it is a plus-plus situation. You know when 
they used to say English as the official language, I said, 
``No, English-plus. Let's learn French and Spanish and every 
other language.''
    And in this case, it is kind of like the OCC-plus, and if 
we could work out among ourselves in a deliberative, 
conscientious manner, then there isn't the need for hearing, we 
can all go about what we need to do, and I think you would be 
strengthened by having the support of both sides of the aisle, 
whether it is in the Senate or in the House, to do the job that 
I believe you want to do, which is to regulate and keep the 
safety and soundness of our national banks and hear from us 
about our consumer issues.
    Maybe if Attorney General--I am just thinking--Attorney 
General gets a complaint, shares it with you, 30 days later 
unresolved, he pursues it. I don't know how we do this, but I 
am sure we can work out rules in which you can preserve the 
integrity of the institution that you were nominated and 
confirmed to protect, and we can do our jobs in terms of 
helping our States and our consumers be better served. That is 
my point.
    Mr. Hawke. Mr. Gutierrez, I completely agree with the 
importance of coordination and cooperation. We strongly believe 
I that. The table that I passed out earlier shows that de facto 
is an enormous clearing mechanism that is working every day. 
Complaints that are received in our Customer Assistance Group 
if they don't belong to us, they get referred back to the right 
authority. Complaints that go to the States are referred to us. 
Last year, we had 6,500 complaints referred by State 
authorities to us. We think that we can work very effectively 
together.
    It is true things have changed in 140 years, but one thing 
that hasn't changed is the constitutional principle that was 
first announced by the Supreme Court in 1819, which is that the 
States do not have the constitutional authority to restrict the 
powers that Congress has granted to Federally created entities. 
Congress has the power to change that----
    Mr. Gutierrez. I understand that, but I think there is--
again, and we have had this discussion before, we can argue, 
right, about what Congress said and didn't say and so Congress 
can then say, ``We disagree with Mr. Hawke, so, therefore, we 
are going to legislate this way.'' That could give this 
Congress work that maybe some feel it should have, but I think 
that among reasonable people--because I want to make it 
absolutely clear: I have stated that I think that what the OCC 
does is wonderful. I don't have problems with my nationally 
chartered banks. In my community, most of them they are good, 
honorable, hardworking people that go out every day and 
proactively search for lending products for those underserved 
communities. So I will say that in terms of the banking 
community. This is not a fight about the banking community. 
This is a fight about who is going to do that.
    So all I would say is I will write a letter to the Attorney 
General. I will say, ``Please, all 50 States, and to all the 50 
States, all the bank examiners in those 50 States, please tell 
me where the OCC preemption on this issue affects consumers.'' 
And we will start that as a point at which your staff, our 
staff, I will be involved, others can get involved to resolve 
this. You win, States win, we resolve the issue, and we move 
forward. That is all I am trying to do here today.
    Mr. Hawke. If we can provide more effective protections for 
consumers, we are eager to pursue that course. And I think the 
best way to do so is by continuing to coordinate and exchange 
information with the State law enforcement authorities.
    As I said before, a year ago we proposed a memorandum of 
understanding that would facilitate exactly what you are 
talking about, and so far we have had only one response to it. 
The State of Maine has agreed to it. Nobody else has even come 
back with comments on it. So we are eager to find a modus 
operandi that will make sure that we are all informed about 
what is going on in the banking system and that we are taking 
steps to protect consumers most effectively within our 
respective jurisdictions.
    We have very awesome powers, and when we send bank 
examiners into a bank we can get results. We can fix problems 
before they become systemic. We can get nationwide remedies if 
we find systemic problems. I think we far better enforcement 
barriers than our colleagues at the State level in respect of 
dealing with banks.
    Mr. Bachus. Thank you.
    Comptroller Hawke, just following up, and I am not going to 
ask you questions, but one thing I would be interested in is do 
most consumers, most homeowners know about the complaint 
resolution system? I mean is that information prominently 
displayed in----
    Mr. Hawke. It is. And, Mr. Bachus, I think the best 
evidence of that is the fact that we get 70,000 calls a year. 
Many consumer groups post our 800 number on their web sites. 
The number gets around, because we get 14,000 to 15,000 
complaints a year that don't even belong to us, and we farm 
those out back to the responsible agencies. So people find 
their way.
    And one of the things that we can do with better 
coordination with the States is to make sure that if there is 
any question about where a complaint should go that we take 
steps to make sure that it gets to the right place.
    Mr. Bachus. Thank you. Let me ask one final question. One 
thing I want to do just for the record is you stated several 
times in this hearing room and other venues that you are very 
concerned about the state of Basel II, the negotiations and the 
complexity of those. I am going to submit some written 
questions to you concerning that in the interest of time, but I 
do want to end with this question. Comptroller, we have heard 
from some industries but in particular the check cashing 
industry. The banks have dropped them as customers as a whole 
industry. They just came in and said, ``We are not going to 
have check cashers as customers anymore,'' even though there 
were no individual problems with individual check cashers. And 
they cite an OCC policy that they need more scrutiny than other 
businesses. And I think I have talked to you about this, and I 
think that they may be at a higher risk for money laundering, 
at least that is one of the things that is offered.
    And my question to you is, and I have looked at the 
guidelines on the high risk and what is--and attorneys, car 
dealers, jewelry stores are all considered by our government as 
in that same category. But I have not heard from any car 
dealerships, I have not heard from any attorneys, I have not 
heard from any jewelers that any of their businesses have been 
dropped by banks. And I am concerned that there is 
discrimination or unreasonable interpretation of those 
guidelines, maybe by individual examiners. Would you like to 
comment on that?
    Mr. Hawke. I can't say that I know for sure, Mr. Chairman, 
exactly what the complaints are about the check cashers. I know 
that when I was at the Treasury Department there was an issue 
about the linkages between check cashers and banks with respect 
to direct deposit.
    Mr. Bachus. Yes. That is a different issue, I think.
    Mr. Hawke. The issue here, I suspect, relates more to money 
laundering, and I would say that we have done nothing that 
should have resulted in banks dropping check cashers as a 
class, and I think that is one of the things that has to be 
looked at on a case-by-case basis.
    Mr. Bachus. And I would like you to be aware of that, 
because these are the legitimate licensed businesses. And I 
might disagree with certain type of businesses, but I think 
they have the right to have national banks and to--so I would 
appreciate you looking into that.
    Let me close by saying that you have been subject to a 
rigorous examination here this morning, and I personally think 
you have acquitted yourself very well. You have been under a 
long examination, and I think your answers have been candid, I 
think they have been open, and I very much appreciate your 
testimony here this morning. And although I may not be the one 
that should be offering an apology, I think on at least one or 
two occasions you were treated somewhat shabbily by members, 
and I apologize for that.
    Mr. Hawke. Mr. Chairman, I appreciate the interest and 
involvement of this committee. These are important issues and 
there are no easy answers, but I welcome the opportunity to try 
to clarify our view of the implications of what we did, because 
I think there have been some significant misstatements and 
exaggerations about the impact of our regulations.
    Mr. Bachus. All right. And I think that you were vigorous 
in pointing that out. And I think you have maintained dignity 
in a high degree of professionalism, and I thank you for that.
    Mr. Hawke. Thank you, Mr. Chairman.
    Mr. Bachus. With that, our committee is dismissed.
    [Whereupon, at 1:07 p.m., the Committee was adjourned.]


                            A P P E N D I X



                             April 1, 2004


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