[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
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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.]
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