OCC Preemption Rulemaking: Opportunities Existed to Enhance the  
Consultative Efforts and Better Document the Rulemaking Process  
(17-OCT-05, GAO-06-8).						 
                                                                 
On January 13, 2004, the Office of the Comptroller of the	 
Currency (OCC) issued two sets of rules (the preemption rules) on
the extent to which the National Bank Act preempts the		 
application of state and local laws to national banks and their  
operating subsidiaries. The rules and the manner in which OCC	 
promulgated them generated considerable controversy. Some state  
officials, consumer groups, and congressional members questioned 
whether OCC adhered to the statutes and executive orders	 
pertaining to rulemaking and whether the process was as inclusive
as it could have been. GAO (1) assessed OCC's rulemaking process 
within the framework of applicable laws and executive orders, (2)
described the issues raised in comment letters and OCC's	 
responses, and (3) identified and discussed stakeholder concerns 
about how OCC promulgated its preemption rules. 		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-8						        
    ACCNO:   A39577						        
  TITLE:     OCC Preemption Rulemaking: Opportunities Existed to      
Enhance the Consultative Efforts and Better Document the	 
Rulemaking Process						 
     DATE:   10/17/2005 
  SUBJECT:   Administrative law 				 
	     Bank management					 
	     Banking law					 
	     Banking regulation 				 
	     Federal law					 
	     Federal regulations				 
	     Financial institutions				 
	     Intergovernmental relations			 
	     National banks					 
	     Stakeholder consultations				 

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GAO-06-8

United States Government Accountability Office

GAO	Report to the Subcommittee on Oversight and Investigations, Committee
on

                  Financial Services, House of Representatives

October 2005

OCC PREEMPTION RULEMAKING

 Opportunities Existed to Enhance the Consultative Efforts and Better Document
                             the Rulemaking Process

                                       a

GAO-06-8

Highlights of GAO-06-8, a report to the Subcommittee on Oversight and
Investigations, Committee on Financial Services, House of Representatives

On January 13, 2004, the Office of the Comptroller of the Currency (OCC)
issued two sets of rules (the preemption rules) on the extent to which the
National Bank Act preempts the application of state and local laws to
national banks and their operating subsidiaries. The rules and the manner
in which OCC promulgated them generated considerable controversy. Some
state officials, consumer groups, and congressional members questioned
whether OCC adhered to the statutes and executive orders pertaining to
rulemaking and whether the process was as inclusive as it could have been.
GAO (1) assessed OCC's rulemaking process within the framework of
applicable laws and executive orders, (2) described the issues raised in
comment letters and OCC's responses, and (3) identified and discussed
stakeholder concerns about how OCC promulgated its preemption rules.

GAO is not making recommendations because OCC generally followed laws and
executive orders. GAO makes observations on how OCC could enhance
consultation and better document its rulemaking process. In its comments,
OCC agreed to develop detailed written procedures, disagreed with GAO's
observations about the sufficiency of documentation and consultation
relative to the executive orders, but intends to enhance its consultation.

www.gao.gov/cgi-bin/getrpt?GAO-06-8.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Richard J. Hillman at (202)
512-8678 or [email protected].

October 2005

OCC PREEMPTION RULEMAKING

Opportunities Existed to Enhance the Consultative Efforts and Better Document
the Rulemaking Process

Federal preemption of state law affecting national banks always has been
controversial and seems to have become more so with consolidation in the
financial services industry, which has resulted in the presence of large
national banks in nearly every state. OCC followed the statutory framework
for rulemaking and appears to have followed applicable executive orders,
but it was difficult to fully determine the basis for some agency actions
or assess the extent of its consultation with stakeholders because OCC did
not always document its actions. The agency also lacked its own guidance
or procedures for its rulemaking process and instead used a rulemaking
checklist as a guide for completing reviews and routing documents. Federal
internal control standards call for documenting actions to verify that an
agency has complied with its policies and applicable law. The standards
also call for agencies to follow written procedures in making important
decisions, to provide a framework for ensuring compliance with management
directives and applicable law and regulations. Without such documentation
and procedures, evidence to substantiate OCC's actions was limited.

OCC considered all of the approximately 2,700 comment letters it received
on its banking activities proposal, but strongly disagreed with comments
questioning its preemptive authority and the rules' adverse effect on
consumers. GAO's analysis of the letters revealed that commenters were
concerned that the rule could diminish enforcement of state consumer
protection laws, questioned the bases for OCC's legal analysis and
conclusions, and posited adverse effects on state-chartered banks. In
response, OCC contended that it has a comprehensive consumer protection
effort for national banks, reiterated its preemptive authority, and
asserted the rule would preserve the "dual banking" system. However, OCC
agreed with some issues raised in the public comments and made some
changes to the final rules. For instance, OCC included an explicit
reference to a provision of the Federal Trade Commission Act that
prohibits national banks from engaging in practices considered unfair and
deceptive.

Most criticism about how OCC promulgated the rules focused on what some
believed was a lack of opportunity to discuss and comment on the proposed
rules. Although OCC briefed several congressional members about the
proposals before they were published, some criticized OCC for issuing the
rules while Congress was in recess and not allowing time for hearings on
the rules. OCC officials told GAO that a lengthy delay would have harmed
banks' ability to securitize their loans, left consumers with fewer
choices, or imposed burdensome costs on banks seeking to comply with a
multitude of state laws. According to consumer groups, OCC could and
should have offered additional mechanisms for soliciting public input-such
as public meetings. Some financial institution regulators have used other
means besides the comment period to solicit input for rulemakings they
deemed controversial. GAO observed that such efforts, while not required,
might have contributed to a better understanding about the rules.

Contents

  Letter

Results in Brief
Background
OCC Generally Followed Rulemaking Requirements but Lacked

Documentation and Written Guidance, Making It Hard to Verify Consultation
Efforts

OCC Considered All Comments on Its Banking Activities Rule, and Strongly
Disagreed with Those Challenging Its Authority, but Made Some Changes in
Response to Others

Stakeholders Raised Issues Regarding the Process OCC Used to

Promulgate Its Preemption Rules Observations Agency Comments and Our
Evaluation

1 5 8

14

29

40 44 46

Appendixes                                                           
                Appendix I:     Objectives, Scope, and Methodology         48 
                            Comments from the Office of the Comptroller 
               Appendix II:                   of the                    
                                             Currency                      52 
              Appendix III:    GAO Contact and Staff Acknowledgments       55 
                                 Figure 1: OCC Informal Rulemaking            
    Figures                 Procedures Figure 2: Sample OCC Rulemaking  
                                             Checklist                  22 24
                            Figure 3: Composition of Commenters, Based  
                                        on Our Analysis of              
                                        373 Nonform Letters                31 
                              Figure 4: Frequently Cited Concerns of    
                                        Selected Commenters             
                                Opposed to OCC's Banking Activities        33 
                                             Proposal                   

Contents

Abbreviations

APA Administrative Procedure Act
CRA Congressional Review Act
CSBS Conference of State Bank Supervisors
FDIC Federal Deposit Insurance Corporation
Federal Reserve Board of Governors of the Federal Reserve System
LRA Legislative and Regulatory Activities Division
NCUA National Credit Union Administration
OCC Office of the Comptroller of the Currency
OMB Office of Management and Budget
OTS Office of Thrift Supervision
RFA Regulatory Flexibility Act
SEC Securities and Exchange Commission
UMRA Unfunded Mandates Reform Act

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.

A

United States Government Accountability Office Washington, D.C. 20548

October 17, 2005

The Honorable Sue W. Kelly
Chairwoman
The Honorable Luis V. Gutierrez
Ranking Minority Member
Subcommittee on Oversight and Investigations
Committee on Financial Services
House of Representatives

In the National Bank Act, Congress created the Office of the Comptroller
of
the Currency (OCC) to supervise national banks.1 In its capacity as the
supervisor of national banks, OCC issues regulations, policies, and
interpretations to establish standards, define acceptable practices,
provide
guidance on risks, and prohibit or restrict practices. However, OCC
traditionally has issued opinions, rather than rules or regulations, on
whether the National Bank Act preempts state laws that impose standards
or restrictions on the business of national banks. In contrast, on January
13, 2004, OCC issued two final rules (preemption rules) on the extent to
which the National Bank Act preempts the application of state and local
laws to national banks and their operating subsidiaries.2 The rules and
the
manner in which OCC promulgated them generated considerable
controversy and debate, including questions about OCC's authority to issue
the rules.

According to OCC, the two sets of rules "codified" judicial decisions and
OCC opinions on preemption under the National Bank Act by making them
generally applicable and clarified certain issues. More specifically, as
stated
by OCC, the visitorial powers rule clarifies that federal law commits the
supervision of national banks' banking activities exclusively to OCC
(except where federal law provides otherwise) and that states may not use

1In the 1830s, state banks became the primary source of paper currency,
issuing notes against their reserves. Congress enacted the National
Currency Act in 1863, which limited the power of state banks to issue
notes, established a national bank charter, and created OCC, among other
things. OCC is a bureau of the U.S. Department of the Treasury. 12 Stat.
665 (1863). In 1864, Congress revised the National Currency Act (renamed
the National Bank Act) to provide for comprehensive OCC regulation of
national banks. Although OCC is a bureau of the Treasury, it is an
independent office within Treasury. In 1994, Congress amended the National
Bank Act to describe OCC's autonomy with respect to rulemaking. Pub. L.
No. 103-325 S: 331(b).

269 Fed. Reg. 1895 (visitorial powers); 69 Fed. Reg. 1904 (national bank
activities).

judicial actions as an indirect means of regulating those activities.3 The
second rule, which we refer to in this report as the banking activities
rule, preempts categories of state laws that relate to bank activities and
operations, describes the test for preemption that OCC will apply to state
laws that do not fall within the identified categories, and lists certain
types of state laws that are not preempted.4 In proposing the banking
activities rule, OCC stated that it needed to provide timely and more
comprehensive standards about the applicability of state laws to lending,
deposit taking, and other authorized activities of national banks because
of the number and significance of questions banks were posing about
preemption in those

5

areas.

The proposed rules and OCC's rulemaking process drew strong reactions of
either support or opposition from the banking industry, state legislators,
attorneys general, and other officials, consumer group representatives,
and some Members of Congress. For example, all of the state attorneys
general questioned whether OCC reasonably analyzed the case for
preemption. In a comment letter on the banking activities proposals, they
stated that the National Bank Act was not intended to divest all state
authority over national banks, and under Supreme Court precedent, national
banks are subject to state laws that do not conflict with the powers of
national banks or discriminate against national banks. Further, opponents
such as consumer groups and state legislators feared that the preemption
of state law, particularly with respect to predatory lending practices,
would weaken consumer protections. In contrast, proponents contended that
replacing differing state laws with a consistent standard would increase
the health of the banking system. However, opponents countered that OCC's
actions could have far-reaching effects on the banking industry, such as
undermining the "dual banking system," by conferring undue benefits to
federally chartered banks at the expense of state-chartered banks.6

312 C.F.R. S: 7.4000 (2005).

412 C.F.R. S:S: 7.4007, 7.4008, 7.4009, 34.3, 34.4 (2005). These
regulations also contain an anti-predatory lending standard and discuss
OCC enforcement of section 5 of the Federal Trade Commission Act for
consumer protection purposes.

568 Fed. Reg. 46119, 46120 (Aug. 5, 2003).

6The complex system of federally and state-chartered banks is generally
referred to as the "dual banking system."

Finally, Members of Congress held three hearings in 2004, including one
held by your subcommittee in January of that year, centered on these and
other issues. In addition to airing differences on the limits of federal
versus state powers and potential effects on consumers, the hearings also
featured discussion about such issues as why OCC issued the rules when
Congress was in recess (after receiving a request from some members to
delay the issuance of the rules), to what extent OCC consulted with state
officials and other groups during the rulemaking process, and the
resources OCC dedicates to consumer complaints.

The statutory framework applicable to OCC rulemaking includes the
Administrative Procedure Act (APA), which, among other things, sets forth
the process for federal agency "informal rulemaking"; the Congressional
Review Act (CRA), which provides for Congress's review of an agency's
rules and even disapproval (through a joint resolution); the Regulatory
Flexibility Act (RFA), which requires agencies to assess the economic
impact of their proposed rules on "small entities";7 and the Unfunded
Mandates Reform Act (UMRA), which generally requires covered agencies to
take certain actions if their proposed rules could result in the
expenditure of $100 million or more in any year by state, local, and
tribal governments, or by the private sector. In addition, OCC is subject
to executive orders in its rulemakings. Executive Order 12866, Regulatory
Planning and Review (E.O. 12866) directs agencies, among other matters, to
determine if their proposed rules constitute a "significant regulatory
action" as that phrase is defined in the order, and, if so, to prepare
certain analyses and provide them to the Office of Management and Budget
(OMB), which is charged with reviewing agencies' proposed rules under the
order. A second order, Executive Order 13132, entitled "Federalism" (E.O.
13132), sets forth principles, policymaking criteria, and requirements for
agencies to apply when developing "policies that have federalism
implications." Federalism in this context means the division of government
responsibilities between the federal government and the states. The APA,
other laws, and the two executive orders give agencies discretion about
how to promulgate regulations.

You requested that we review the process OCC followed in promulgating the
preemption rules; assess the potential impact of the rules on the dual
banking system and consumer protection; and assess OCC's process and

7"Small entities" includes small businesses, small governmental
jurisdictions, and certain not-for-profit organizations. 5 U.S.C. S:
601-612.

capacity to handle consumer complaints. As agreed with your staffs, we
will provide you with separate reports on the potential impact of these
rules on the dual banking system and OCC's capacity to handle consumer
complaints at a later date. This report focuses on OCC's rulemaking
process. Accordingly, the report (1) assesses OCC's rulemaking process
within the framework of applicable laws and executive orders; (2)
describes the issues raised in public comment letters on the banking
activities rule, and describes if and how OCC responded to these comments;
and (3) identifies issues that stakeholders raised about the manner in
which OCC promulgated its preemption rules and how OCC responded to the
stakeholders.

To assess OCC's rulemaking process, we reviewed applicable laws and
executive orders related to OCC rulemaking and analyzed the Federal
Register notices pertaining to both the proposed and final preemption
rules. In addition, we interviewed OCC officials who participated in OCC's
promulgation of the rules and analyzed the documents from docket files
that OCC maintained on the two rules. Using this information, we compared
OCC's actions with the provisions of the relevant laws and executive
orders. To determine the issues raised in the comment letters on the
substance of the banking activities rule, we conducted a content analysis
of 373 letters received by the OCC on its preemption proposal. To describe
how OCC responded to the issues raised in the comment letters, we analyzed
the final rule for any changes OCC attributed to the comments and the
preamble of the final rule for discussion regarding the public comments.
To clarify our understanding of how OCC considered or addressed certain
comments, we interviewed OCC officials. To identify issues raised about
how OCC promulgated its preemption rules, we interviewed officials from
consumer groups and state organizations to obtain their views and reviewed
statements and transcripts from congressional hearings and letters that
members sent to OCC during the public comment period. To identify how OCC
responded to the criticisms of its rulemaking process, we interviewed OCC
officials and reviewed their congressional testimony. In addition, we
interviewed officials from the Board of Governors of the Federal Reserve
System and the Federal Deposit Insurance Corporation (FDIC) to obtain
information on how those organizations handle controversial rules. We
conducted our work in Washington, D.C., from August 2004 through August
2005 in accordance with generally accepted government auditing standards.
Appendix I provides a detailed description of our scope and methodology.

Results in Brief	OCC followed the statutory framework for rulemaking and
appears to have acted within its discretion in executing the executive
orders, but we could not fully determine the basis for some of the other
agency actions or assess the extent of its consultations with
stakeholders, because OCC did not always document its actions and lacked
written guidance and procedures detailing the rulemaking process. OCC
followed the process for informal rulemaking set forth in the APA by
allowing for public participation through the "notice and comment
process." That is, OCC published both the visitorial powers and banking
activities proposals in the Federal Register, requested and considered
public comments, and promulgated the final rules as prescribed by the APA.
OCC also followed requirements and documented some actions it took related
to the other statutes. However, with regard to the two executive orders,
OCC did not always document its actions and some stakeholders disputed
some of OCC's decisions or actions related to both orders. For example, in
the preamble to the banking activities rule, OCC stated that the rule was
not "significant" for purposes of E.O. 12866. Staff memorandums, in the
official rulemaking file, which we reviewed, did not articulate the
analysis underlying the determination. OCC officials told us that because
the rules were clarifying matters related to the powers of national banks
that had been addressed previously by OCC and in court decisions, they did
not deem the rules to be significant regulatory actions as defined in the
order. In relation to provisions of E.O. 13132 that direct agencies to
consult with state and local officials early in the process of rulemaking
when preemption of state law is involved, some state bank supervisors,
attorneys general, and their representative organizations maintain that
OCC's efforts to consult with them were not sufficient. OCC disagreed with
those views. Its official rulemaking file contained little to document its
consultation efforts. Further, OCC does not have written guidance,
policies, or procedures detailing the rulemaking process. Instead, OCC
uses a "rulemaking checklist" that serves as a guide for completing the
required reviews and the routing of documents. According to internal
control standards for the federal government, agencies should follow
written procedures in making important decisions. Without such
documentation, it may not be clear-to agency management, auditors, or
oversight committees-that an agency followed applicable requirements.

While OCC considered the comments it received in response to its banking
activities proposal, it disagreed with challenges to its preemptive
authority. However, OCC did make changes in the final rule in response to
some commenter concerns. OCC considered all of the approximately 2,700
comment letters submitted by a variety of consumer groups, public

officials, businesspeople, and others in response to its banking
activities proposal. Our analysis of the 373 nonform comment letters
revealed that commenters focused on what they believed would be the rule's
diminishing effect on enforcement of state consumer protection laws,
questions about OCC's legal analysis and conclusions justifying preemption
and the rule's effect on the dual banking system. Consumer groups
commented that because national banks and their subsidiaries would no
longer be subject to state consumer protection laws, some of which have
"higher standards" than federal law, consumers would be vulnerable to
predatory lending. Some consumer groups and state officials with whom we
met continue to believe that there is a "vacuum" in consumer protection
under the rule. Opposing comments also disputed OCC's legal authority to
preempt a state's right to regulate entities organized under its law, such
as operating subsidiaries of national banks. OCC's consideration of
comments is reflected in various documents, including the preamble to the
final rule, and internal memorandums. While OCC considered the comments,
it disagreed with several commenters, particularly those who questioned
its ability to protect consumers and challenged its authority to
promulgate its rule. However, OCC agreed with some issues raised in the
comments and made some changes to the final banking activities rule. For
instance, several consumer groups urged OCC to state that national bank
lending practices should conform to the Federal Trade Commission Act's
prohibition against unfair or deceptive acts or practices. OCC agreed and
added this language to the final rule. OCC noted that this addition
augmented standards it set previously in 2003 guidance for banks regarding
predatory lending.8 In addition, since the rule was finalized, OCC has
issued guidance to national banks on avoiding predatory, abusive, unfair,
or deceptive lending practices.9

Most criticism of OCC's rulemaking procedures-which came from consumer
groups, some state officials and their respective organizations, some
Members of Congress, and others-focused on what some believed was a lack
of opportunity to discuss and comment on the proposed rules and OCC's
issuance of the final rules when some Members of Congress had asked for a
delay. According to OCC, it provided ample opportunity for

8OCC Advisory Letter 2003-2, ``Guidelines for National Banks to Guard
Against Predatory and Abusive Lending Practices'' (Feb. 21, 2003) and OCC
Advisory Letter 2003-3, ``Avoiding Predatory and Abusive Lending Practices
in Brokered and Purchased Loans'' (Feb. 21, 2003).

970 Fed. Reg. 6329 (Feb. 7, 2005).

comment, especially since the rules were not "new law," but reflected
precedents and standards already applied by OCC or courts. Although OCC
briefed several Members of Congress about the rules before they were
issued, some criticized OCC for issuing the rules while Congress was out
of session and not allowing additional time for congressional hearings
about many issues raised by the proposed rules. From OCC's perspective,
the length of the delay that some members were requesting was unclear and
other members did not endorse a delay. According to OCC officials, a
lengthy delay would have created more uncertainty for national banks
regarding the applicability of state or local laws and could have led some
lenders to stop lending in certain markets because of variations in state
or local laws, challenges in complying with them, and difficulties in
selling loans made under state and local laws. Consumer groups we
interviewed also suggested that OCC should have offered additional
mechanisms for soliciting public input in its rulemaking. Other financial
institution regulators have used additional mechanisms for public comment
when they deemed rulemakings controversial. For example, some had used
"public meeting type" hearings. According to OCC officials, they did not
take such actions because they believed that they fully understood the
points of view of all stakeholders. Measures such as public meetings might
have promoted greater understanding of the preemption rules and provided
opportunities for building more constructive relationships between federal
and state authorities.

We provided a draft of this report to OCC for review and comment. In
written comments, the Comptroller of the Currency (see app. II) concurred
with our observation that its rulemaking process could benefit from
detailed written rulemaking procedures and the agency intends to develop
them by year-end 2005. OCC disagreed with our observation that its
documentation did not articulate the analysis underlying its conclusion
that the rules were "not significant" for purposes of E.O. 12866. We
examined OCC's documentation and found it consisted of stating that the
rules were not a significant regulatory action as defined by the executive
order because the annual effect on the economy was less than $100 million.
However, OCC's documentation did not address other criteria set forth in
the order, such as whether a rule would have an adverse effect in a
material way on state, local, or tribal governments or communities. Thus,
we continue to disagree with OCC. Although OCC maintained that its efforts
to consult with state officials and organizations were appropriate for the
preemption rulemakings, it intends to enhance those efforts. OCC also
provided technical comments that we incorporated, as appropriate.

Background	The federal agency rulemaking process is subject to statutory
requirements and executive orders issued by the President. Summaries or
brief discussions of OCC's mission and program areas (including
regulation), the statutes and executive orders pertaining to rulemaking,
and the legal basis for preemption follow.

    OCC Mission and Regulatory Responsibilities

OCC's mission focuses on the chartering and oversight of national banks to
assure their safety and soundness and on fair access to financial services
and fair treatment of bank customers. OCC is one of five federal
regulators of institutions whose deposits are federally insured-the other
four are the Board of Governors of the Federal Reserve System (Federal
Reserve), the Federal Deposit Insurance Corporation (FDIC), the Office of
Thrift Supervision (OTS), and the National Credit Union Administration
(NCUA). While the Federal Reserve and FDIC share supervision of
state-chartered banks with the states, OCC is the sole supervisor for
national banks. OTS oversees thrifts or savings and loan institutions and
NCUA oversees credit unions and insures the member deposits at federally
insured credit unions.

OCC groups its regulatory responsibilities into three program areas:
chartering, regulation, and supervision. Chartering activities include not
only review and approval of charters, but also review and approval of
mergers, acquisitions, and reorganizations. Regulatory activities result
in the establishment of regulations, policies, operating guidance,
interpretations, and examination policies and handbooks. OCC's supervisory
activities encompass bank examinations and enforcement activities; dispute
resolution; ongoing monitoring of banks; and analysis of systemic risk and
market trends. Additionally, in its most recent strategic plan, OCC
identified its regulatory approach as one that would ensure that national
banks operated in a "flexible legal and regulatory framework" that enables
them to provide a "full competitive array" of financial services. The plan
also included fair access to financial services and fair treatment of bank
customers as a strategic goal. The agency also emphasized that it would
"support continued recognition of the preemptive attributes of the
national bank charter through appropriate opinions, regulations, and
participation in litigation where warranted."

As of March 2005, the assets of the banks that OCC supervises account for
approximately 67 percent-about $5.8 trillion-of assets in commercial
banks. Among the more than 1,800 banks OCC supervises are 14 of the top

20 commercial banks in asset size. OCC also supervises federal branches
and agencies of foreign banks.

    Statutory Rulemaking Requirements

Section 553 of the Administrative Procedure Act (APA) contains
requirements for the most long-standing and broadly applicable type of
federal rulemaking, commonly referred to as "informal rulemaking" or
"notice and comment" rulemaking.10 Most federal rulemaking is conducted as
informal rulemaking, in which agencies publish a notice of proposed
rulemaking in the Federal Register and provide "interested persons" with
an opportunity to comment on the proposed rule.11 The act does not specify
the length of the comment period, but agencies commonly provide at least
30 days. The act does not mandate that an agency hold oral, or "public
meeting type," hearings during the comment period for informal rulemaking;
instead, it allows an agency to decide whether to hold a hearing.12 After
giving interested persons an opportunity to comment on the proposed rule,
and after considering the public comments, the agency may then publish the
final rule, incorporating a general statement of its basis and purpose.13
The APA's notice and comment procedures do not apply to interpretative
rules; general statements of policy; or rules that deal with agency
organization, procedure, or practice.

The Congressional Review Act (CRA) allows Congress to review proposed
federal regulations and also contains provisions by which Congress may

10The APA also contains requirements for formal rulemaking, which is used
in rate-making proceedings and in other cases where statute requires that
rules be made "on the record." Formal rulemaking incorporates evidentiary
(or "trial type") hearings, in which interested parties may present
evidence, conduct cross-examinations of other witnesses, and submit
rebuttal evidence. However, few statutes require such on-the-record
hearings.

115 U.S.C. S: 553 (2000). The notice is to contain (1) a statement of the
time, place, and nature of public rulemaking proceedings; (2) reference to
the legal authority under which the rule is proposed; and (3) either the
terms or substance of the proposed rule or a description of the subjects
and issues involved.

125 U.S.C. S: 553 (c). As noted later in this report, by following APA
procedures and allowing for a comment period of more than 30 days, OCC
also followed the procedures for preemptive interpretative rules contained
in 12 U.S.C. S: 43.

13The act states that the rule cannot become effective until at least 30
days after its publication unless (1) the rule grants or recognizes an
exemption or relieves a restriction, (2) the rule is an interpretative
rule or a statement of federal rulemaking policy, or (3) the agency
determines that the rule should take effect sooner for good cause and
publish that determination with the rule.

disapprove agency rules.14 Before any final rule can become effective, CRA
requires that it be filed with each house of Congress and us. The act also
requires federal agencies to submit to us and make available to each house
of Congress a copy of any cost-benefit analysis prepared for the rule. If
the rule is designated by OMB's Office of Information and Regulatory
Affairs as "major" (that is, having a $100 million impact on the economy
or having another characteristic contained in the act), the agency must
delay the rule's effective date by 60 days after publication in the
Federal Register or submission to Congress and us, whichever is later.15
Within 15 days of receiving a major rule, we are required to provide
Congress with a report assessing the agency's compliance with various acts
and executive orders applicable to the rulemaking process. Finally, under
CRA, congressional members can introduce a joint resolution of disapproval
for any rule regardless of whether it is designated as major. To date,
Congress has issued such a resolution only once-by disapproving the
Occupational Safety and Health Administration's ergonomics standards in
2001.16

The Regulatory Flexibility Act of 1980 (RFA) generally requires federal
agencies to assess the impact of their regulation on "small entities,"
including businesses, governmental jurisdictions, and certain not-for
profit organizations having characteristics set forth in the act.17 Under
RFA, Cabinet departments and independent agencies generally must prepare a
"regulatory flexibility analysis" in connection with proposed and certain
final rules, unless the head of the issuing agency determines that the
proposed rule would not have a "significant economic impact" upon a
substantial number of small entities. The analysis must include, among
other things, (1) the reasons why the regulatory action is being
considered; (2) the small entities to which the proposed rule will apply
and, where

145 U.S.C. S:S: 801-808.

15A major rule is defined as a rule that will likely have an annual effect
on the economy of $100 million or more; increase costs or prices for
consumers, industries, or state and local governments; or have significant
adverse effects on the economy.

16On November 14, 2000, the Occupational and Safety Health Administration
promulgated an ergonomics standard. It would have required employers to
set up control programs for job categories where "work-related
musculoskeletal disorders" are reported. In the debate over ergonomics,
large monetary estimates have been cited for both the benefits of a
national standard and the costs thereof. After the final standard was
released in November 2000, opponents of the Occupational Safety and Health
Administration's approach introduced and quickly passed a congressional
resolution of disapproval that revoked the rule.

175 U.S.C. S:S: 601-612.

feasible, an estimate of their numbers; and (3) the projected reporting,
record keeping, and other compliance requirements of the proposed rule.

Congress enacted the Unfunded Mandates Reform Act of 1995 (UMRA) to reduce
the costs associated with federal imposition of responsibilities, duties,
and regulations upon state, local, and tribal governments, and the private
sector. Title II of the act generally requires covered federal agencies to
prepare a written statement containing specific information about costs
and benefits for any published rule that includes a federal mandate that
may result in expenditures by state, local, and tribal governments (in the
aggregate) or the private sector of $100 million or more in any year.

    Executive Orders on Rulemaking

In addition to statutory requirements, certain agencies, including OCC,
are subject to Executive Order 12866, "Regulatory Planning and Review"
(E.O. 12866) and Executive Order 13132, "Federalism" (E.O. 13132). Under
E.O. 12866, issued in 1993, covered agencies must submit their
"significant" rules to the Office of Management and Budget (OMB) before
publishing them in the Federal Register.18 Agencies also are required to
prepare a detailed economic analysis for any regulatory actions that are
"economically significant" (that is, have an annual effect on the economy
of $100 million or more or have a material adverse effect as described in
the order). The analysis should include an assessment of anticipated costs
and benefits of the action as well as the costs and benefits of
"potentially effective and reasonably feasible alternatives." In choosing
among alternatives, an agency should select approaches that maximize
benefits, and base its decision on the best "reasonably obtainable"
information. In 1996, OMB issued "best practices" guidance on preparing
cost-benefit analyses under the order, which gives agencies substantial
flexibility on preparing the analyses, but also prescribes certain
elements and requires that the analysis be "transparent"-that is, that an
agency disclose how it conducted the study, what assumptions it used, and
what the implications of plausible alternative assumptions are.

18GAO, Rulemaking: OMB's Role in Reviews of Agencies' Draft Rules and the
Transparency of Those Reviews, GAO-03-929 (Washington, D.C.: Sept. 22,
2003), 24. Before the issuance of E.O. 12866, OMB reviewed all proposed
federal rules. Subsequently, OMB reviewed only significant rules and the
number of regulations reviewed annually declined from 2,000-3,000 to
500-700.

Executive Order 13132 addresses the division of governmental
responsibilities between the national government and the states as
envisioned by the framers of the Constitution. The order contains
principles, policymaking criteria, and requirements for agencies to apply
and follow when formulating "policies that have federalism implications,"
which are defined to include "regulations . . . and other policy
statements or actions that have substantial direct effects on the States,
on the relationship between the national government and the states, or on
the distribution of power and responsibilities among the various levels of
government." The order includes special requirements for agency actions
that preempt state law. Also, E.O. 13132 specifies that rulemaking that
has federalism implications be conducted through an "accountable process"
and ensure "meaningful and timely" input by state and local officials.
Further, the order directs the agency to provide to the Director of OMB a
federalism summary impact statement, which would include: (1) a
description of the extent of the agency's prior consultation with state
and local officials, (2) a summary of the nature of their concerns, (3)
the agency's position supporting the need to issue the regulation, and (4)
a statement of the extent to which the concerns of state and local offices
have been met.

Legal Basis for Preemption 	Preemption of state law is rooted in the
Constitution's Supremacy Clause, which provides that federal law is the
"supreme law of the land." Because both the federal and state governments
have roles in regulating financial institutions, questions can arise about
whether the governing federal statute preempts particular state laws.
Analysis of whether federal law preempts state law has turned on whether
Congress intended that federal law overrides state law. Courts
traditionally have divided preemption analysis into categories of
"express" and "implied" preemptions.

At times, Congress may declare in express terms its intention to preclude
or override state regulation in a given area. With an express preemption,
Congress's intent to preempt state law is clear in the statute. In
addition to express preemption, preemption may be implied from the federal
statute's structure and purpose. Courts have identified two types of
implied preemptions: "field preemptions" and "conflict preemptions." In
the case of field preemption, a court basically finds that the federal
government has so "occupied the field" in a given area that there is no
room for state legislation. Conflict preemption occurs when a court
concludes that state law is in irreconcilable conflict with federal law.
In these instances, a court finds that while Congress did not intend
necessarily to preempt state

regulation in a given area, state law that conflicts directly with federal
law or stands as an obstacle to the accomplishment of federal objectives
is preempted.19

Before the promulgation of its preemption rules, OCC primarily addressed
preemption issues through opinion letters, issued in response to a
specific inquiry from an institution or state.20 In 2000, we examined
OCC's authority and approaches in preempting state laws.21 We reported
that OCC, applying conflict preemption analysis, issued interpretations of
whether federal laws preempt state laws in opinions and corporate
decisions. In the opinions and decisions it issued, prior to January 2004,
particularly in the area of making loans and taking deposits, the
Comptroller maintained consistently that state laws that conflict with
national bank powers authorized under the National Bank Act are preempted.
Additionally, OCC's opinions, based on regulations, on real estate lending
specifically preempted state laws in five areas relating to certain loan
terms and conditions, and stated that OCC would apply "recognized
principles of federal preemption" when considering whether state laws
apply to other aspects of real estate lending by national banks.22

19Jones v. Rath Packing Co., 430 U.S. 519, 525-526 (1977).

20See, e.g., 1978 OCC Letter No. 61 (Sept. 11, 1978), Ref. No. L31, 1978
OCC Ltr. Lexis 57 (preemption under the National Bank Act involves
conflict analysis necessitating separate and individual review of all
provisions of state redlining law; provisions of state law spelling out
certain requirements with respect to national bank's credit terms and
policies not preempted, but related reporting and investigation provisions
preempted based on OCC visitorial powers authority); 1985 OCC Unpublished
Interpretive Letter 122 (July 19, 1985) (because national banks have
specific and independent authority under federal law to make real estate
loans, licensing requirements of state law governing secondary mortgage
loans were preempted with respect to national bank); 1993 OCC Ltr. No. 616
(February 26, 1993), 1993 OCC Lexis 10 (state statute requiring credit
card issuers to provide information to state supervisor is a form of
visitation preempted by OCC visitorial powers authority).

21GAO, Role of the Office of Thrift Supervision and Office of the
Comptroller of the Currency in the Preemption of State Law,
GAO/GGD/OGC-00-51R (Washington, D.C.: Feb. 7, 2000).

22See, e.g., 12 C.F.R. S: 34.4 (2003). The five areas of state law
specifically subjected to preemption related to: (1) the amount of a loan
in relation to the appraised value of the real estate, (2) the schedule
for the repayment of principal and interest, (3) the term to maturity of
the loan, (4) the aggregate amount of funds that may be loaned upon the
security of real estate, and (5) the covenants and restrictions that must
be contained in a lease to qualify the leasehold as acceptable security
for a real estate loan.

  OCC Generally Followed Rulemaking Requirements but Lacked Documentation and
  Written Guidance, Making It Hard to Verify Consultation Efforts

OCC followed the statutory framework in conducting its preemption
rulemaking, but we found it difficult to assess some of the other actions
it took in the rulemaking, particularly consultations with the states,
because OCC did not always document its actions and had no written
guidance or procedures detailing the rulemaking process. In conducting its
rulemaking, OCC followed the requirements of the APA, CRA, RFA, and UMRA.
OCC also is subject to both Executive Orders 12866 and 13132, and
designated both preemption rules as "not significant" for purposes of
Executive Order 12866, but staff memorandums, in the rulemaking files, did
not articulate the analysis underlying the determination. We also found
that the lack of substantive documentation about OCC's consultation with
stakeholders made it difficult to verify whether OCC helped ensure
"meaningful and timely input" by state and local officials. Further, while
OCC staff used a checklist to document completion of internal reviews and
ensure that documents were routed properly, OCC did not have written
guidance to follow in conducting the rulemaking process. Moreover, OCC did
not document the substance of its consultation with states or with other
OCC offices. In contrast, other federal agencies with missions similar to
OCC's have developed some rulemaking guidance for their staffs to follow.

    OCC Followed the Administrative Procedure Act in Its Rulemaking

In promulgating both the visitorial powers and banking activities rules,
OCC followed the process for informal rulemaking prescribed in the APA.23
In the preambles to the visitorial powers and banking activities proposals
and final rules, OCC described the rulemakings as "clarifications" of
interpretations of the scope and preemptive effect of the pertinent

23The preemptive aspects of the rules express OCC's interpretation of the
National Bank Act. APA informal rulemaking requirements do not apply to
interpretative rules. Because OCC used APA rulemaking procedures, we did
not analyze whether those rules were interpretative for purposes of the
APA. OCC, by following APA procedures and allowing a comment period of
more than 30 days, also followed the requirements for preemptive
interpretive rules under 12 U.S.C. S:43.

provisions of the National Bank Act and not as "new law."24 However, OCC
followed APA procedures for informal rulemaking by providing notice of the
proposed rules and an opportunity for public comment, and also doubled the
traditional 30-day comment period to 60 days and satisfied other
requirements of the act, including consideration and discussion of
comments on the rule, as we discuss later in this report. The visitorial
powers proposal was published in the Federal Register on February 7, 2003,
and OCC requested receipt of comments by April 8, 2003. The banking
activities proposal was published on August 5, 2003, and OCC requested
receipt of comments by October 6, 2003. Final drafts of both rules were
published on January 13, 2004, with an effective date of February 12,
2004.

OCC Followed Other Laws 	OCC also followed the provisions of CRA, RFA, and
UMRA. Pursuant to the CRA, OCC sent copies of the final preemption rules
to both houses of Congress and to our Office of General Counsel on January
7, 2004, prior to their effective date of February 12, 2004. Further, OMB
did not make a determination that the rules were major rules for purposes
of the CRA. It based its decision on OCC's determination that neither rule
would have a significant impact on the economy.

As described previously, the purposes of CRA include providing Members of
Congress with an opportunity to disapprove of an agency rulemaking by
enacting a joint resolution. In the 108th Congress, one senator and one
representative introduced such a resolution to disapprove OCC's preemption
rules. More specifically, House of Representatives bill 4236 and Senate
Joint Resolution 31 provided for congressional disapproval of certain
regulations issued by OCC. The House resolution with 35 co-sponsors, was
referred to the Subcommittee on Financial Institutions

2468 Fed. Reg. 6363, 6366-67 (Feb. 7, 2003) (Proposed visitorial powers
rules "interpret and implement 12 U.S.C. S: 484. . . . This rulemaking
contains amendments to (OCC Regulation) S: 7.400 to clarify the
application of section 484 to" questions about the scope of OCC's
visitorial powers in two broad categories.); 69 Fed. Reg. at 1895 -96
(Jan. 13, 2004) (Final visitorial powers rule changes "serve to clarify
that Federal law commits the supervision of national banks' Federally
authorized banking business exclusively to OCC. . . . The regulatory
proposal and the final regulation would not have the effect of preempting
substantive state laws, but rather would clarify the appropriate agency
for enforcing those state laws that are applicable to national banks. . .
. The proposal and this final rule interpret the text of a Federal
statute, 12 U.S.C. S: 484. . . ."); 68 Fed. Reg. 46119 (Jan. 13, 2004)
(Final banking activities preemption rules "add provisions clarifying the
applicability of state law to national banks' operations.").

and Consumer Credit of the House Financial Services Committee. The Senate
resolution, with three co-sponsors, was referred to the Senate Committee
on Banking, Housing and Urban Affairs. However, neither resolution
garnered enough support to pass out of the respective committees.

OCC staff determined that the preemption rulemakings were not subject to
the regulatory flexibility analysis (essentially, potential economic
impact on small entities) required by RFA. OCC certified that no such
impact would result from its rulemakings and provided the required
statement in the preamble to its rules. We reviewed memorandums contained
in the files that discussed OCC's consideration of RFA requirements. In an
initial memorandum on each proposal, OCC's Policy Analysis Division
concluded that the preemption proposals did not impose any new
requirements or burdens on small entities and that the proposal would not
have a significant economic impact on a substantial number of small
entities. In a memorandum prepared on each proposal after the public
comment period, Policy Analysis Division staff concluded that neither
individual consumers nor state governments could be considered to be small
businesses, small organizations, or small governmental jurisdictions under
RFA and, therefore, OCC need not consider the impact of its final rule on
consumers or state governments under RFA.

Similarly, OCC determined that, under UMRA, it did not need to prepare a
written statement during rulemaking, because neither rule would result in
expenditures by state, local, or tribal governments (in the aggregate), or
by the private sector, of $100 million or more in any year. OCC also
stated this position in the preamble of each rule. In a memorandum related
to the visitorial powers proposal that was written before the comment
period, an OCC official wrote that the rule "would be permissive rather
than restrictive and certain provisions permit banks to reorganize in more
cost-effective ways than is currently the case." The memorandum concluded
that private-sector costs associated with the proposed rule would be below
the $100 million threshold in UMRA. In a memorandum on the banking
activities proposal, drafted both before and after the public comment
period, OCC staff concluded that analyses for purposes of UMRA were not
necessary because the rules would not result in expenditures totaling $100
million or more.

    OCC Appears to Have Followed Some Provisions of the Executive Orders, but
    Its Consultation with the States, a Provision of the Order on Federalism,
    Appears Limited

Two executive orders pertained to OCC's preemption rules. E.O. 12866
directs federal agencies to determine whether rules would be "significant"
and thus require OMB review. OCC sent a notice to OMB regarding the
proposed preemption rules stating that the rules did not constitute
significant regulatory actions under this executive order. OCC officials
told us that almost all of OCC's rules are designated as nonsignificant.
Further, OCC stated that because the preemption rules would clarify
already existing standards under the National Bank Act, the regulations
were nonsignificant for purposes of E.O. 12866. While we do not
necessarily dispute this determination, we found little support for the
underlying rationale the agency followed in making its decision.

Executive Order 13132, entitled "Federalism," which was issued in 1999,
establishes principles and criteria for agencies to follow when
formulating regulatory policies with federalism implications.25 The order
defines these policies as including regulations that have "substantial
direct effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government."26 Under the
order, agencies must have an "accountable process to ensure meaningful and
timely input by state and local officials in the development of [such]
regulatory policies."27 The head of each agency is to designate an
official, who will have primary responsibility for ensuring that the
agency implements the order, and the official is to submit to OMB a
description of the agency's consultation process.28

E.O. 13132 creates special requirements for rules with federalism
implications that preempt state law. When an agency foresees the

25This executive order is the successor to E.O. 12612, issued in 1987. The
Reagan administration's executive order was the first to establish the
policy of the Executive Branch on federalism. Former President Clinton
issued a new executive order on federalism in May 1998, but withdrew the
order after it received criticism from state and local interests. The 1999
order was issued after negotiations between state leaders and the Clinton
administration. See Jennie H. Blake, Presidential Power Grab or Pure State
Might? A Modern Debate Over Executive Interpretations On Federalism, 2000
B.Y.U. L. Rev. 293 (2000).

26Exec. Order No. 13132.

27Id. at section 6(a).

28Id. at section 6(a).

possibility of a conflict between state law and federally protected
interests within its area of regulatory responsibility, the agency is to
"consult, to the extent practicable with appropriate state and local
officials in an effort to avoid such a conflict."29 If an agency proposes
to act through rulemaking to preempt state law, the agency "shall provide
all affected state and local officials notice and an opportunity for
appropriate participation in the proceedings."30 "To the extent
practicable and permitted by law, no agency shall promulgate any
regulation that has federalism implications and that preempts state law,
unless the agency, prior to the formal promulgation of the regulation, . .
. consulted with state and local officials early in the process of
developing the proposed regulation."31 The order also requires agencies to
submit to OMB a federalism summary impact statement in a separately
identified portion of the preamble to the regulation, as it is to be
published in the Federal Register. The federalism summary impact statement
is to include a description of the agency's prior consultation with state
and local officials, a summary of the nature of their concerns, the
agency's position supporting the need to issue the regulation, and a
statement of the extent to which the concerns of state and local officials
have been met.32 In addition, the agency is to make available to OMB any
written communications submitted to the agency by state and local
officials.33 Finally, in transmitting any draft regulation to OMB, the
agency is to include a certification from the designated federalism
official stating that the requirements of the order have been met in a
meaningful and timely manner.34

General guidance exists to aid agencies in interpretation of the
requirements of the order, including the consultation requirement and the
special requirements for preemption. OMB issued guidance for heads of
agencies in implementing E.O. 13132, describing what agencies should do to
comply with E.O. 13132 and how they should document that compliance

29Id. at section 4(d). 30Id. at section 4(e). 31Id. at section 6(c)(1).
32Id. at section 6(c)(2). 33Id. at section 6(c)(3). 34Id. at section 8(a).

for OMB.35 In connection with the consultation requirement, the guidance
provides that agencies "should seek comment on . . . preemption as
appropriate to the nature of the rulemaking under development. The timing,
nature, and detail of the consultation should also be appropriate to the
nature of the regulation involved."36

After the issuance of E.O. 13132, OCC sent a letter on September 17, 1999,
to the Conference of State Bank Supervisors (CSBS) proposing a process by
which it would consult with the state bank regulators.37 First, OCC asked
that CSBS serve as the primary channel for communicating with state
banking officials when OCC proposed a regulation that had federalism
implications. Secondly, it proposed to send CSBS the draft of a proposed
regulation shortly before the document was sent to the Federal Register
for publication. According to OCC, CSBS would still have sufficient time
within a rulemaking comment period to distribute the draft to its members
and receive comments. OCC stated that these comments would receive special
review in the context of the federalism implications of the proposal in
question. In response, the CSBS President agreed to act as an intermediary
between OCC and various state banking departments on policy issues that
might affect state rulemaking and supervisory authority.

Although OCC did send the drafts of the proposed rules to CSBS, the extent
to which it consulted with state officials appeared limited. Following
publication of the proposed rules, OCC indicated it met twice with CSBS
representatives. OCC officials offered several reasons why, in their view,
additional consultation with the states was unnecessary or impracticable.
They told us that OCC maintained a channel of informal communication with
CSBS during the period leading up to the rules and, through this
mechanism, was informed about state concerns, as contemplated by the
order. In attempting to verify OCC's established consultation process with
CSBS, we found that OCC sent letters to CSBS regarding both the visitorial
powers and the banking activities rules, in which OCC advised CSBS of the
publication of the proposals. For both proposals, OCC sent the letters a
few

35See OMB, Memorandum for Heads of Executive Departments and Agencies, and
Independent Regulatory Agencies: Guidance for Implementing E.O. 13132,
from John T. Spotila, Administrator, Office of Information and Regulatory
Affairs (Washington, D.C., Oct. 28, 1999).

36Id. at section 8.

37The Conference of State Bank Supervisors is an umbrella organization
that represents the state bank regulators.

days before their publication in the Federal Register. OCC advised CSBS of
the visitorial powers proposal on January 31, 2003, and the proposal was
published on February 7, 2003. For the banking activities proposal, CSBS
received notification on July 30, 2003, before the proposal was published
in the Federal Register on August 5, 2003. OCC officials stated that
because the rules codify preemption precedents, they generally did not
impose new or different standards and as a result, further consultation
with the states was not necessary. Finally, OCC officials noted that
because the rules reflect the agency's understanding of congressional
intent about the preemptive effect of the National Bank Act, dialogue with
the states about their role in regulating national banks and their
subsidiaries would not have raised issues about which OCC was not already
aware.

The OMB guidance strongly recommends that, to the extent that an agency
has carried out intergovernmental consultations prior to publication of
the Notice of Proposed Rulemaking, the agency help state and local
governments, and the public as a whole, by including a "federalism summary
impact statement" in the preamble to the Notice of Proposed Rulemaking.38
Although OCC itself has issued no guidance to assist in determining
whether a proposed regulation has sufficient federalism implications to
warrant preparation of a federalism summary impact statement, OCC drafted
and provided to the Director of OMB the federalism summary impact
statements. The impact statements included information on OCC's
consultation efforts with the states on both rules, the concerns of the
states, and the extent to which the concerns were addressed. As required
by the executive order, OCC included the impact statements, as part of the
preambles of the preemption rules. The content of the two impact
statements was similar. In providing these materials to OMB, OCC certified
its compliance with the order. However, we found minimal documentation in
OCC files related to the federalism summary impact statement provision of
E.O. 13132. We could determine that OCC sent the federalism summary impact
statement to OMB because OMB staff provided us with the documentation.

We note that there are no court decisions or other precedents applicable
in determining what the executive order requires; nevertheless, OCC might
have considered additional consultative actions to help ensure the
meaningful and timely input by state and local officials. For example, as
discussed more fully later in this report, OCC might have considered

38See OMB's Guidance for Implementing E.O. 13132, 6.

holding additional meetings with interested parties and providing further
opportunities for input by entities such as trade groups, state attorneys
general, and state bank regulators. OCC also might have solicited this
input by asking for written comments on policy proposals and conducting
additional outreach to state officials.

    While We Could Describe the General Process, All of OCC's Actions Were Not
    Fully Documented; Additionally, OCC Lacks Formal Guidance on Rulemaking

We could not verify all of the actions OCC took to complete its preemption
rulemaking because OCC did not always document its actions and lacked
written guidance or procedures detailing the rulemaking process. According
to Standards for Internal Control in the Federal Government, agencies
should follow written procedures in making important decisions. Absent
such documentation, it may not be clear that an agency followed applicable
requirements and made its decision without bias. The agency also needs
operating information to determine whether it has met requirements under
various laws and regulations.39 Moreover, the former Administrative
Conference of the United States noted, "Rulemaking is not just a product
of external constraints. The agency's own processes for developing rules
and reviewing them internally affect the rulemaking environment. Thus,
agency management initiatives can have a significant impact on the
effectiveness and efficiency of rulemaking."40

We were able to ascertain OCC's general process for conducting a
rulemaking, but had to augment our review of the docket files for the
preemption rules with interviews of OCC officials. Figure 1 illustrates
the various stages of approval by OCC management and actions taken by OCC
staff to promulgate regulations. More specifically, the staff of the
Legislative and Regulatory Activities Division (LRA) is primarily
responsible for drafting and managing OCC's rulemaking. The process
includes various levels of internal review and approval; additionally, OCC
submits draft proposals to Treasury for informational purposes and to OMB
to fulfill their responsibility under the executive order.

39GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C: November 1999), which was prepared to
fulfill our statutory requirement under the Federal Managers' Financial
Integrity Act of 1982, provides an overall framework for establishing and
maintaining internal control and for identifying and addressing major
performance and management challenges and areas at greatest risk of fraud,
waste, abuse, and mismanagement.

40Jeffrey Lubbers, "Administrative Conference of the United States
Recommendation 93-4: Improving the Environment for Agency Rulemaking," A
Guide to Federal Agency Rulemaking (Chicago: American Bar Association,
1999), 423.

Figure 1: OCC Informal Rulemaking Procedures

Source: GAO.

aThe Legislative and Regulatory Activities Division's responsibilities
include developing and drafting OCC's regulations and ensuring the
agency's compliance with the various federal statutes and executive orders
that govern the rulemaking process.

bIn the case of the preemption rules, OCC sent the Conference of State
Bank Supervisors the drafts of the banking activities and visitorial
powers proposals on July 30, 2003, and January 31, 2003, respectively.

cThe visitorial powers proposal was published in the Federal Register on
February 7, 2003 (68 Fed. Reg. 6363), and the banking activities proposal
was published on August 5, 2003 (68 Fed. Reg. 46119). Both proposals
incorporated a 60-day comment period.

However, OCC does not have written guidance, policies, or procedures
detailing the rulemaking process. As part of its general agency Policies
and Procedures Manual, OCC includes guidance on its internal approval
process for its policymaking and rulemaking. Much of the guidance focused
on administrative and routing actions of OCC staff. For example, it
included instructions on staff practices, such as preparing an initiation
memorandum, an issues memorandum that discusses the project and summarizes
the issues for OCC staff, and staff actions required for a gold border
review. The guidance for the gold border review described how staff should
prepare the reviewers' memorandum, identify the appropriate

reviewers, and secure the required approval signatures. During our review
of the rulemaking process, OCC revised this guidance. The revised
guidance, issued on April 26, 2005, provides a more in-depth discussion of
the gold and red border approval processes. However, neither the previous
nor revised guidance discussed how OCC staff should implement relevant
rulemaking laws and executive orders when they are conducting a
rulemaking.

OCC did retain some documentation related to the rulemaking in the
official file, known as a "docket," for each of the rules. In addition,
the dockets contained what officials called "a rulemaking checklist." The
checklist served as a guide for completing the required reviews and the
routing of documents (see fig. 2). However, based on our review, the
checklist did not record the substance of any decisions made during the
development and the promulgation of the rules.

Figure 2: Sample OCC Rulemaking Checklist

                                  Source: OCC.

As discussed previously, E.O. 12866 directs federal agencies to determine
whether rules would be "significant" and thus require OMB review, but
staff memorandums in the rulemaking files did not articulate the analysis
underlying the determination-although the agency stated in the preambles
to the final regulations that the rules did not constitute significant
regulatory actions under this executive order. Also, with respect to E.O.
13132, "Federalism," OCC stated that it "consulted with state and local
officials . . . through the rulemaking process" and met with
representatives of CSBS to clarify their understanding of the proposals.41
But we found no documents detailing OCC's consultation with CSBS officials
or the state attorneys general, and without documentation, we could not
verify the extent or nature of the discussions. According to CSBS
officials, they met twice with OCC officials regarding the banking
activities proposal after its publication in the Federal Register;
however, in their view, nothing of substance was discussed in the
meetings. For example, the CSBS officials noted that in the second
meeting, credit card issues were discussed more than anything else. We
note that OCC officials described the subject matter discussed at these
meetings as including the banking activities rule. A state attorney
general told us that he and several other state attorneys general had met
with the Comptroller and OCC's Chief Counsel prior to the banking
activities rule being issued, but the OCC docket files did not contain any
documentation of these meetings.42 Further, we found minimal documentation
in OCC files related to the federalism summary impact statement provision
of E.O. 13132.

In addition to the lack of documentation related to consultation and
impact statement provisions in the executive order, according to OCC
officials, OCC does not have any written policies about communications
with interested parties during a rulemaking. The officials added that when
OCC staff meets with interested parties on a rule proposal, it urges them
to draft a comment letter and include the issues discussed at the meeting
in their letter.

Finally, OCC officials told us that they conferred with other divisions
within OCC during the rulemaking. However, we did not find documentation
on staff coordination or input on issues related to the

4169 Fed. Reg. 1903 (visitorial powers); 69 Fed. Reg. 1915 (bank
activities).

42After reviewing our draft, OCC staff provided us with correspondence
between OCC officials and the state attorneys general that referred to the
meeting.

rulemaking in the docket. For example, the officials told us that they
consulted with OCC's Community and Consumer Law staff about some of the
consumer protection issues being raised in the comment letters and the
Customer Assistance Group on whether OCC had sufficient resources to
handle any increase in consumer complaints. The docket files contained no
information that reflected this consultation. What information on staff
coordination the docket files did contain focused on routing actions, such
as preparing documents for publication in the Federal Register. The
dockets include memorandums between LRA and OCC's Policy Analysis Division
staff discussing the Policy Analysis Division staff's assessment of RFA's
and UMRA's applicability to the proposals. Other than these memorandums,
the OCC files did not include any additional documentation of any analyses
that were performed for CRA, RFA, and UMRA purposes. For example, OCC
officials stated in a memorandum that these rules did not meet the
criteria under the law without documenting the rationale for their
decisions.

    FDIC, Treasury, and SEC Have Written Guidance for Conducting a Rulemaking

FDIC and Treasury have written guidance for their rulemaking and SEC staff
have also prepared written background materials, which the agencies use to
assist their respective staffs in the promulgation of rules. Although the
guidance differed in some cases, generally it summarized the relevant laws
on rulemaking; identified certain actions that staff should take to comply
with the laws; and discussed how public comments should be handled. In
addition, the guidance instructed staff on coordinating with other staff
members. However, because we did not review the rulemaking files or
dockets of the other regulators, we could not determine how the agencies
documented compliance with their guidance.

FDIC's guidance for rulemaking is contained in FDIC Rules and Statements
of Policy: Development and Review Guide and Handbook, which provides
information on overall processes for developing and reviewing FDIC rules
and statements of policy, as well as specific procedures for meeting the
statutory and other requirements of rules and

statements of policy. The handbook also includes criteria and instructions
on how to comply with various laws.43

The handbook has instructions that cover promulgation of regulations, from
project planning to finalizing the rule. For example, it describes actions
that FDIC staff should follow when preparing a regulatory impact analysis,
specifying that the analysis should include an introduction, an analysis
of the proposal, an analysis of an alternative, a quantitative analysis,
and a conclusion. It goes on to provide more detailed guidance on how to
prepare discussions of costs, benefits, impacts, risks, and quantitative
analyses. In addition to procedures for complying with rulemaking laws,
FDIC guidance outlined steps for staff coordination.

Treasury has developed guidance for the issuance of regulations, review of
existing regulations, and preparation of regulatory agendas and plans that
are governed by various statutes, executive orders, and other authorities.
Treasury issued its guidance, "Preparation and Review of Regulations," in
the form of a directive, which provides offices and bureaus with the
guidance necessary to comply with the statutory authorities and to obtain
timely departmental and administration review of regulatory documents.
According to a Treasury official, its individual offices and bureaus, with
the exception of the Internal Revenue Service, do not have separate
rulemaking guidance. The Internal Revenue Service has its own rulemaking
guidance, but also follows Treasury's guidance.

According to OCC officials, the procedures specified in the Treasury
directive do not apply to OCC because OCC's regulations are not subject to
clearance or approval by the department. The officials referred to a
provision of the National Bank Act (12 U.S.C. S: 1) that describes the
Comptroller's authority and autonomy over matters within OCC's

43Executive Orders 12866 and 13132 apply to agencies defined under 44
U.S.C. S: 3502(1), but not to those considered independent regulatory
agencies as defined in section 3502. Since FDIC is an independent
regulatory agency under section 3502 and is not subject to Executive
Orders 12866 and 13132, its handbook does not have any procedures on
carrying out these executive orders.

jurisdiction.44 Thus, according to OCC officials, while consultation
between OCC and Treasury occurs on policy matters, the OCC's regulations
are not subject to clearance or approval by Treasury. However, according
to a Treasury official, the Treasury has the opportunity to review and
comment on each proposed and final regulation prior to issuance.

We do not challenge the OCC officials' assertion about the applicability
of Treasury's directive, but we note that the directive contains guidance
useful for assessing the adequacy of opportunities for public
participation and directs offices and bureaus to allow not less than 60
days for public comment on the notice for proposed rulemakings that are
designated "significant." The directive also provides guidance on whether
regulatory actions are significant as defined in E.O. 12866. Treasury's
directive also refers to implementing orders on federalism, but refers to
E.O. 12612, the predecessor of E.O. 13132; thus, we did not use it for
comparative or illustrative purposes in this report. According to a
Treasury official, the department is currently updating the directive.

An overview of regulatory requirements is included in the SEC Compliance
Handbook, which was revised by its Office of the General Counsel in
October 1999.45 Based on our review, the handbook provides an overview of
the relevant rulemaking statutes, such as the CRA and RFA, and other
suggested steps that SEC staff should consider using in conducting a
rulemaking. For example, staff should consider consulting with the General
Counsel and the Office of Economic Analysis and circulating the draft to
other potentially affected divisions as early as possible.

Based on our review, the handbook also describes what type of records
generally should be kept for a rulemaking. It suggests that SEC staff not
only include among other things internal memorandums and research, but
also comment letters, a summary of comments, and Office of Economic
Analysis data. Finally, SEC's handbook also discusses the regulations

44See 12 U.S.C. S: 1462a(b)(3). Among other things, the section provides
that the Secretary of the Treasury may not delay or prevent the issuance
of any rule or the promulgation of any regulation by the Comptroller. It
also gives to the Comptroller the same authority over matters within OCC's
jurisdiction as the OTS director has over matters within OTS's
jurisdiction. The same authority means that the Secretary of the Treasury
may not intervene in any matter or proceeding before the Comptroller
(including agency enforcement actions) unless otherwise specifically
provided by law.

45Like FDIC, SEC is an independent regulatory agency under 44 U.S.C. S:
3502 and, therefore, is not subject to Executive Orders 12866 and 13132.

relevant for determining whether the commission should treat a rule as
major or "nonmajor" for purposes of CRA. It notes a number of
documentation and coordination tasks that staff could undertake before
making the designation. For example, staff members could consider: (1)
preparing a short memorandum for OMB that briefly describes the rule and
the reasons why the rule is not major and (2) keeping background
information supporting the basis for the recommended determination.

  OCC Considered All Comments on Its Banking Activities Rule, and Strongly
  Disagreed with Those Challenging Its Authority, but Made Some Changes in
  Response to Others

While OCC considered all public comments, it strongly disagreed with those
questioning its preemption authority or the rule's negative effects on
consumers; however, it did make changes to the rule in response to some
comments. OCC reviewed and considered approximately 2,700 comment letters
submitted by a variety of consumer groups, public officials,
businesspeople, and others in response to its banking activities proposal.
Our analysis of the comment letters revealed that commenters, among other
things, focused on what they believed would be the rule's effect to
diminish enforcement of state consumer protection laws, questions about
OCC's legal analysis, and conclusions justifying preemption and the rule's
effect on the dual banking system. OCC's consideration of the comments is
reflected in a number of sources, including the final rule. While OCC
considered the comments, it strongly disagreed with those that challenged
its ability to protect consumers and its authority to promulgate its rule.
For example, OCC maintained that its banking activities rule does not
affect a state's ability to protect consumers from institutions that might
engage in predatory practices but rather upholds its responsibility of
ensuring the efficient operation of the national banking system as
authorized by Congress, and preserves the dual banking system. However,
OCC agreed with some of the comments it received and made changes to its
proposed rule, including adding some information to clarify parts of the
rule, such as its anti-predatory lending standard.

    A Variety of Commenters Responded to the Proposed Banking Activities Rule

OCC received approximately 2,700 comments on the proposal from a variety
of consumer groups, public officials, businesspeople, and other
individuals. The majority of comments (83 percent) were form letters
written in opposition to the proposal and submitted by Realtors and other
individuals.46 Figure 3, which is based on our analysis of 373 nonform
comment letters, illustrates the composition of commenters by group and
position (that is, opponent, proponent, or other). Our analysis of the
content of the nonform letters indicated that 85 percent of these
commenters were opposed to the proposal and expressed a variety of
concerns. We found that 10 percent of the commenters favored the proposal.
The remaining 5 percent of commenters neither opposed nor supported the
proposal-rather, in some instances these commenters requested additional
information to clarify certain aspects of the proposal.

46We found that 2,250 comment letters submitted to OCC were form letters
from Realtors and other individuals. The Realtor form letters expressed
identical concerns: that national banks' financial subsidiaries would be
permitted to engage in real estate brokerage activities without complying
with state real estate brokerage licensing laws if the Board of Governors
of the Federal Reserve were to determine that real estate brokerage is an
activity permissible for qualified bank holding companies. Some individual
commenters who also submitted essentially the same form letter expressed
concerns about the effect of the preemption regulation on state consumer
protection laws.

Figure 3: Composition of Commenters, Based on Our Analysis of 373 Nonform
                                    Letters

Number of comments

Individuals (82)

                              Consumer groups (70)

Realtors (54)

                      State and local agencies (47) State

Miscellaneous/ other

                 Bank industry [other] (19) National banks (19)

                            Congressionalmembers(13)

                          State attorneys general (4)

Governors (3)

                                State banks (2)

legislators (27)

                              (33) Commenter types

Other Pro Con

Based on our analysis of the comment letters, we found that most
commenters opposed to the proposed rule cited concerns about weakened
consumer protections. These and other concerns raised in comment letters
in opposition to OCC's banking activities proposal are summarized in
figure

4. They also contended that because national banks, with their
considerable presence in the lending market, would no longer be subject to
certain state consumer protection laws, consumers would be vulnerable to
various forms of predatory lending. Comments from state officials argued
that a lack of state regulation would create "an enormous vacuum of
consumer protection without adequate federal regulation to fill the gap."
Many of these commenters suggested that OCC needed to do more, not less,
to protect consumers. They believed that some state-enacted fair lending
legislation addressed certain predatory lending practices and cited

                                  Source: GAO.

    The Majority of the Commenters Raised Concerns about Potentially Weakening
    of Consumer Protections

as an example legislative efforts that mirrored the federal Home Ownership
Equity Protection Act, yet provided stronger consumer protections.
According to these commenters, these state laws defined and restricted
high-cost loans that were more likely to be abusive or predatory and
characteristic of trade practices, such as loan flipping, fee packing, and
equity stripping. However, they maintained that the banking activities
rule would eliminate the protections afforded by these state laws. They
concluded that OCC should have refrained from preempting these state laws
or, at the very least, incorporated principles from its 2003 guidance on
predatory lending and abusive practices, which they argued cites some of
the same fraudulent trade practices defined by these state laws and were
determined by OCC to be unfair, deceptive, and likely violate the Federal
Trade Commission Act. Commenters also urged OCC to affirmatively
articulate that a national bank's lending practices must be conducted in
conformance with section 5 of the Federal Trade Commission Act, which
makes unlawful ``unfair or deceptive acts or practices.''

  Figure 4: Frequently Cited Concerns of Selected Commenters Opposed to OCC's
                          Banking Activities Proposal

Source: GAO.

Note: We based our analysis on 373 comment letters (nonform letters)
submitted to OCC during the public comment period for the banking
activities proposal.

Consumer groups and state officials commented that OCC's rule would
cripple states' ability to regulate national banks and their operating
subsidiaries, and in the process potentially increase the number of
consumer complaints sent to OCC regarding national banks and their
operating subsidiaries. They asserted that OCC did not have the capacity
to adequately handle an increased volume of complaints, and argued that
"with an already fully engaged staff of national bank examiners and OCC
employees, the Comptroller cannot match the resources of state banking

departments, consumer credit divisions, and offices of state attorneys
general that currently work to identify fraudulent and abusive practices."

The issues cited next most frequently (by commenters opposed to the rule)
dealt with the legal basis for preempting state regulation of national
banks' operating subsidiaries. The commenters questioned OCC's legal
authority to promulgate the rule, asserting that OCC did not properly
apply the legal standard for preemption and did not have a legal basis for
preempting state laws with respect to national bank operating
subsidiaries. These commenters stated that preempting the application of
state laws to operating subsidiaries would infringe on states' rights to
regulate entities that they license. They asserted that OCC's preemption
proposal would "federalize" national bank operating subsidiaries, many of
which are state-licensed.47 Additionally, commenters noted that if
finalized, OCC's preemption rule would prevent states from regulating
these entities and would diminish the states' ability to protect their
citizens. State officials contended that federal banking statutes and
state corporate laws establish a clear separation between national banks
and their "affiliates," including their operating subsidiaries.
Accordingly, these commenters believed that OCC did not have the power to
bar states from licensing, examining, and otherwise regulating
state-licensed corporations, including those affiliated with national
banks. This issue was of particular concern to commenters who believed
that certain national bank operating subsidiaries engaged in predatory and
abusive practices. Another commenter suggested that OCC's rule would
encourage lenders to "restructure as operating subsidiaries of national
banks to avoid certain consumer protection restrictions."

Commenters also expressed concerns about the effect of the rule on the
dual banking system and contended that OCC's rule would promote a "race to
the bottom" in consumer protection. Consumer groups and state officials
held that the banking activities rule could put national banks at an
advantage over other financial institutions and blur the well-established
competitive marketplaces of each state. They argued that the result would
be a reduction in regulatory oversight in the banking industry because
other bank regulators would be encouraged to reduce their regulatory
efforts to match what some considered "subpar" standards being set for
national banks. State officials believed that this result would be
inevitable

47National banks are not subject to state chartering requirements or laws
governing the formation and conduct of business entities. National bank
operating subsidiaries, however, typically are formed under the laws of a
particular state.

because regulatory control of the banking industry would be concentrated
in OCC.

State officials and consumer group commenters asserted that OCC took a
sweeping approach to preemption in its proposal. They noted that a state
law generally would apply to a national bank only if the state law fit
into one of a few limited categories or if OCC decided that the particular
state law has "only incidentally affected" the exercise of national bank
powers or is otherwise consistent with the rule itself. Commenters
contended that absent specific consent from OCC, the only types of state
laws that would ordinarily apply to national banks are those enumerated in
the proposal (such as those pertaining to contracts, torts, and criminal
law). They stated that national banks could even be exempted from these
types of laws if OCC decided that one of these types of state law
marginally affected the exercise of national bank power. These commenters
concluded that the national bank charter could become a "get out of jail
free" card.

Generally, proponents of OCC's preemption proposal, largely national banks
and others representing the banking industry, stated that the rule
promoted a uniform national regulatory standard, which they viewed as a
significant benefit to national banks and argued that field preemption
would allow national banks to provide services on a multistate basis
without being subject to a patchwork of conflicting and inconsistent state
laws. According to these groups, without a national standard, national
banks operating under varied state laws faced increased costs, compliance
burdens, and possible litigation because of not being able to comply with
each and every requirement. Further, they contended that some national
banks could be forced to limit certain products and services in
jurisdictions where state and local laws imposed different standards, thus
harming consumers. They suggested that these state laws would ultimately
harm the national bank system and therefore urged OCC to adopt an
"occupation of the field" preemption standard concerning national bank
real estate lending.

National bank industry commenters also expressed concern that the proposed
anti-predatory lending standard prevented national banks from making loans
based predominantly on the foreclosure value of a borrower's
collateral-that is, without regard to the borrower's repayment ability.
These commenters contended that this new standard would prevent national
banks from making legitimate loans, for example, to high net worth
individuals whose ongoing cash flow could be sufficient to repay the

loan. These commenters noted that reverse mortgage, small business, and
high net worth loans are often made based on the value of the collateral.

Supporting commenters also asked OCC to clarify particular parts of its
proposal. For example, several commenters noted that section 34.4(a) of
the banking activities preemption proposal lists "categories" of state
laws that are preempted, but did not specifically enumerate which state
laws would be preempted. A number of these commenters asked OCC to list in
its final rule specific state laws imposing various limitations on
mortgage underwriting and servicing and those state laws pertaining to
debt collection, which were not determined to be preempted in the
proposal.

    In Response to Comments, OCC Reasserted Its Preemption Authority but Made
    Some Changes in the Final Rule

We analyzed a variety of sources and determined that while OCC considered
all of the comments it received during the banking activities rulemaking,
they strongly disagreed with commenters that doubted their ability to
protect consumers as well as those that questioned their preemption
authority. OCC stated in the preamble to the final rule that national
banks and their operating subsidiaries would be regulated by strong
federal standards and any abusive practices would not be tolerated.
Moreover, OCC maintained that national banks were not the source of
predatory and abusive lending practices. The Comptroller also suggested
that the banking activities rule did not affect a state's ability to
protect vulnerable consumers from other types of lending institutions that
might engage in predatory practices. The Comptroller emphatically
suggested that the banking activities preemption standards "are
comprehensive and apply nationwide, to all national banks. The rules apply
strong protections for national bank customers in every state-including
the majority of states that do not have their own anti-predatory lending
standards."

According to OCC officials, the agency has a comprehensive consumer
protection effort focused on national banks and operating subsidiaries
(consisting of its supervisory and enforcement functions, the Customer
Assistance Group, and the Community and Consumer Law and Enforcement and
Compliance divisions of the Law Department). According to OCC, this effort
includes enforcement of applicable state laws and a comprehensive array of
federal consumer protection laws. This consumer protection effort will be
the focus of one of our forthcoming reports. OCC also maintained that
states increasingly face budget constraints, and their insistence on
adding national bank supervision to an ever-increasing list of
responsibilities would likely detract from "the availability of state
resources to protect consumers in other areas-other areas where there is

evidence of abusive lending-other areas that are not as highly regulated
as the banking business."

OCC restated its authority to promulgate its banking activities rule
throughout the preamble to the final banking activities rule, maintaining
that it is charged with the primary responsibility of making certain that
national banks operate efficiently and to the full extent of their powers
under federal law.48 Moreover, OCC contended that its regulation codifies
existing determinations and prior Supreme Court decisions regarding
national bank operations and had no effect on regulations previously
established to govern the activities of national bank operating
subsidiaries. Pursuant to OCC regulation, national bank operating
subsidiaries conduct their activities subject to the same terms and
conditions that apply to the parent banks, except where federal law
provides otherwise.49

OCC noted in the preamble to the final banking activities rule that
differences between state-chartered banks and federally chartered banks
and the supervision of each were the "defining characteristics" of the
dual banking system and that its final rule would preserve, not undermine,
this system. The preamble concluded that OCC fundamentally disagreed with
state and local officials on this issue and asserted that the rule was a
necessary component to "enable national banks to operate to the full
extent of their powers under federal law, and without interference from
inconsistent state laws; consistent with the national character of the
national banks; and in furtherance of their safe and sound operations."50
However, OCC acknowledged the concerns of both opponents and supporters of
the proposal and made some changes based on their comments. For instance,
OCC added an express reference to section 5 of the Federal Trade
Commission Act, which makes unlawful ``unfair or deceptive acts or
practices,'' in response to commenters who urged OCC to

48This responsibility includes helping to ensure that national banks
operate as authorized by Congress, in alignment with the essential
character of a national banking system and without undue constraint of
their powers. OCC also explained that federal law gives it broad
rulemaking authority to fulfill its regulatory responsibilities and cited
12 U.S.C. 93a, which explains how OCC is authorized ``to prescribe rules
and regulations to carry out the responsibilities of the office,'' and 12
U.S.C. 371, which authorizes OCC to ``prescribe by regulation or order''
the ``restrictions and requirements'' on national banks' real estate
lending power.

49See 12 C.F.R. S:S: 5.34 and 7.4006. See also 69 Fed. Reg. 1905, 1906.

5069 Fed. Reg. 1915 (2004).

declare that this federal standard indeed applied to national banks. OCC
viewed this as a fitting addition to its rule. OCC also stated that its
anti-predatory lending standard augments prior standards such as those
contained in OCC's Advisory Letters on predatory lending. According to the
Comptroller, OCC pioneered the use of section 5 as a basis for enforcement
actions against banks that have engaged in such conduct. In contrast, in
response to commenters who suggested that OCC specifically articulate what
activities constitute unfair and deceptive practices, OCC noted in the
preamble to the final banking activities rule that it does not have
authority to specify by regulation specific practices as unfair or
deceptive under the Federal Trade Commission Act. In February 2005, OCC
issued new guidance pursuant to the enforcement scheme of section 39 of
the Federal Deposit Insurance Act, "as a further step to protect against
national bank involvement in predatory, abusive, unfair, or deceptive
residential mortgage lending practices."51 This guidance describes
practices that OCC deems inconsistent with sound residential mortgage
lending practices. It also describes other terms and practices that may be
conducive to predatory, abusive, unfair, or deceptive lending practices,
depending on the circumstances. OCC noted in the guidance that it has the
discretion to take action to enforce the guidelines.

In response to comments arguing that the banking activities rule would at
some point preempt categories of state law that the proposal declared
would not be preempted, OCC stated that it "refined" some language in the
final rule and further explained in the preamble the standards to be used
in determining when preemption would occur and the criteria for when state
laws would not be preempted. OCC further explained that (1) state statutes
and standards that federal law makes applicable or incorporates and (2)
state laws that relate to the daily course of business of national banks
and their operating subsidiaries, but only incidentally affect the bank's
exercise of its federally authorized powers or otherwise are consistent
with federal law, would not be preempted.52 The latter category includes
laws pertaining to contracts, rights to collect debts, the acquisition and
transfer of property, taxation, zoning, crimes, and torts. Additionally,
in response to comments that OCC solicited on whether it should "occupy
the field" of real estate

5170 Fed. Reg. 6329 (2005). 5269 Fed. Reg. 1911-12, 1913.

lending, OCC determined that it would not do so based on comments it
received pertaining to this issue and prior judicial decisions.53

With respect to its new anti-predatory lending standard, OCC agreed with
comments that suggested that there are instances where loans are
legitimately underwritten on the basis of the value of the borrower's
collateral and revised the anti-predatory lending standard to clarify that
it would apply only to consumer loans secured by real estate. OCC
characterized consumer loans as loans for personal, family, or household
purposes and stressed that this standard was intended to prevent borrowers
from being unwittingly placed in a situation where repayment would be
unlikely without the lender seizing the collateral and that it would
permit national banks to use a variety of methods to determine a
borrower's ability to repay.

OCC acknowledged supporting comments requesting that it specifically list
additional categories of state law that these commenters believed should
be preempted, but chose not to do so. Instead, OCC included language in
the rule's preamble asserting that the list of the types of preempted
state laws enumerated in the rule were not intended to be exhaustive, that
it would retain the ability to address other types of state laws on a
case-by-case basis, and make determinations on preemption under applicable
standards. Further, in a clarification concerning debt collection
activities, OCC officials explained that it was difficult to establish a
standard that would capture all of the concerns raised regarding national
bank debt collection activities. As a result, OCC changed the description
of this type of non-preempted state law from laws concerning "debt
collection" to laws affecting a national bank's "rights to collect debts"
(making all phrasing consistent with that used in a Supreme Court
decision). OCC officials told us that they ultimately decided to leave the

53OCC states in the final version of its banking activities rule that upon
further consideration (including careful review of comments submitted
pertaining to this point) of whether it should "occupy the field" of real
estate lending, it concluded, as the Supreme Court recognized in Hines and
reaffirmed in Barnett, that the effect of labeling of this nature is
largely immaterial in the present circumstances. As a result, OCC declined
to adopt the suggestion of certain commenters that it declare that the
regulations ``occupy the field'' of national banks' real estate lending,
other lending, and deposit-taking activities and chose to rely on its
authority under both 12 U.S.C. 93a and 371. To the extent that an issue
arises concerning the application of a state law not specifically
addressed in the final regulation, it would retain the ability to address
those questions through interpretation of the regulation, through issuance
of orders pursuant to its authority under 12 U.S.C. 371, or, if warranted
by the significance of the issue, by rulemaking to amend the regulation.

interpretation of this term open to the possibilities of subsequent OCC
action or interpretation by the courts.

  Stakeholders Raised Issues Regarding the Process OCC Used to Promulgate Its
  Preemption Rules

Some Members of Congress, state officials, and consumer groups criticized
how OCC promulgated the banking activities rules. For example, some
members requested a delay in the finalization of the rules so that they
could hold additional hearings to discuss the rules' potential impacts on
consumer protection. According to OCC officials, they could not determine
the length of the delay that some members were requesting, and a lengthy
delay would have created more uncertainty for national banks regarding the
applicability of state or local laws and could have led some lenders to
leave certain markets. Moreover, according to OCC, while some members
sought a delay, other members did not endorse a delay. Additionally, some
representatives of consumer groups and state organizations criticized OCC
for not employing additional mechanisms for soliciting public input in the
rulemaking. Other regulators told us they have used additional mechanisms
for public comment during rulemakings they deemed controversial.

    Congressional Members Requested a Delay in the Finalization of the OCC Rules

Some Members of Congress requested that OCC delay finalization of its
rules so that they could further study its potential impact. However,
congressional members and staff did receive information on the rules prior
to this request. According to a chronology provided to us by OCC staff,
OCC officials briefed a number of congressional members and their staff
starting in October 2002 and ending in October 2003. In several of these
briefings, the then-Comptroller of the Currency and OCC's Chief Counsel
briefed majority and minority staff from the Committee on Financial
Services, House of Representatives, and the Senate Committee on Banking,
Housing, and Urban Affairs.

Some Members of Congress wanted OCC to delay the finalization of the rules
so that they could hold hearings on the proposed rules. According to a
letter from members of the House Financial Services Committee from the
state of New York to OCC, the focus of the hearings would be the potential
impact of the rules on consumer protection and the dual banking system.
The Acting Comptroller of the Currency described that OCC staff received
mixed views from within Congress and that some members of the House
Financial Services Committee wanted a hearing while others did not endorse
a delay or hearing. Since the OCC staff did not receive any

information on a specific date for the hearing, they were uncertain about
the length of the delay that the members were requesting.

In congressional testimony (in late January 2004), the Acting Comptroller
provided reasons for why the agency finalized the rules when it did.54
First, the rules were not creating any "new law" because the rules were
entirely consistent with existing laws, such as the National Bank Act.
Second, the continuing uncertainty about the applicability of state laws
had affected national banks' ability to lend in certain markets and access
the secondary market. Third, the Acting Comptroller asserted that state
and local governments were accelerating enactment of anti-predatory
lending legislation.

The Acting Comptroller provided us with a similar explanation, saying that
OCC was receiving inquiries at the time from national banks requesting a
clarification on whether state laws on anti-predatory lending would be
applicable to them and advising OCC that these state laws were creating
market impacts. A lengthy delay would have resulted in more uncertainty
for the banks because more states would have continued enacting
anti-predatory lending laws, which would have adversely affected the U.S.
mortgage market. Moreover, she noted that a number of state anti-predatory
lending laws were to come into effect during 2004, and OCC anticipated
that additional states were planning to enact such laws. OCC officials
also noted that the former Comptroller of the Currency became ill during
the final stages of the banking activities and visitorial powers
rulemaking. Because OCC did not have a date for the potential
congressional hearing and the Comptroller wanted to take part in the
finalization of the rules, OCC staff worked to be in a position to
complete the rulemaking process by late January 2004.

    Some Groups Criticized OCC's Efforts to Solicit Public Input

Consumer and state groups wanted OCC to provide additional mechanisms
beyond written comments for soliciting public input. Some consumer groups
told us that OCC should have held "public meeting type" hearings and
extended the length of the 60-day comment period to obtain public

54See testimony of Julie L. Williams, First Senior Deputy Comptroller and
Chief Counsel, Office of the Comptroller of the Currency, Subcommittee on
Oversight and Investigations of the Committee on Financial Services, U.S.
House of Representatives, January 28, 2004. Also see testimony of John
Hawke Jr., Comptroller of the Currency, Office of the Comptroller of the
Currency, Committee on Banking, Housing and Urban Affairs, U.S. Senate,
April 7, 2004.

comments on the banking activities rule. In their view, the banking
activities rule was a controversial proposal that required OCC to obtain
sufficient input from groups across the country. According to these
groups, it has been a standard practice at other federal agencies to hold
these types of meetings when the agencies deem that proposed rules would
be controversial. Some consumer groups considered that public meetings
were an important part of an educational, democratic process.

According to OCC officials, it was not OCC's standard procedure to hold
"public meeting type" hearings on proposed rulemakings. The Acting
Comptroller of the Currency told us that she personally conducts outreach
to consumer groups and the banking industry on a variety of issues,
including preemption; also, she did not foresee that she would have heard
anything different in a public hearing than in her outreach sessions. OCC
also has staff in the Community Affairs Department and a Banking Relations
Senior Advisor, who, according to OCC staff, host outreach efforts with
consumer and banking groups, respectively, on a frequent basis. These
efforts provide these groups with an opportunity to comment on issues.

    Some Federal Regulators Have Used Additional Mechanisms for Obtaining Public
    Comments on Controversial Rulemakings

Based on our interviews with FDIC, Federal Reserve, OTS, and SEC, staff
employ additional mechanisms for soliciting public input for rulemakings.
According to its Deputy General Counsel, FDIC will take steps in addition
to accepting written comments to alleviate some of the controversy
associated with certain rulemakings. For example, from the mid-1980s to
2005, FDIC held approximately seven "public meeting type" hearings on its
rulemakings. The most recent concerned a request from a bank industry
group that FDIC issue rules that would allow a state bank's home state
laws to govern the interstate activities of state banks and their
subsidiaries to the same extent that the National Bank Act governs a
national bank's interstate activities. In announcing the public hearing on
March 21, 2005, FDIC stated that if it agreed to conduct a rulemaking on
preemption, the rulemaking proposal would be published in the Federal
Register and an opportunity for public comment would be provided. On May
24, 2005, FDIC held the hearing on the preemption request; participants
were an attorney representing the Financial Services Roundtable, the CSBS
Chairman, five state banking regulators, an organization representing
community bankers, the National Association of Realtors, and
representatives from the three community groups and four banks. After each
panel presented its views, FDIC staff asked questions of the panelists
regarding the merits of the request and discussed issues with them.
Additional parties chose not to

appear at the hearing, but submitted written views on the petition. On
July 19, 2005, in a meeting open to the public, the FDIC Board voted to
table the preemption request from the bank industry trade group but
directed its staff to develop a more thorough notice of proposed
rulemaking on the issue.

OTS has rarely held "public meeting type" hearings on proposed rulemaking
proceedings, but according to OTS officials, OTS has held what the
officials called "town meetings" on a regular basis at its field offices
and has used them as an opportunity to identify emerging issues. Similar
to OCC, OTS will forward advance copies of rulemaking proposals that may
have federalism implications under E.O. 13132 to CSBS officials about 1
week before the proposal is published in the Federal Register. But, on
occasion, OTS will contact other organizations representing state
officials and regulators, including the National Association of Attorneys
General and the American Association of Residential Mortgage Regulators,
for input on OTS's rulemaking proposals. OTS officials told us that they
may meet occasionally with groups during the public comment stage of a
rulemaking, but if they did, then staff would include a transcript of the
discussion in the rulemaking file.

Federal Reserve policy provides that the usual method for the public to
provide input on a rulemaking is through written comments. According to
Federal Reserve staff, the Federal Reserve has not held a formal "public
meeting type" hearing for a rulemaking in the last 5 years. However,
according to Federal Reserve staff, the agency often conducts a
substantial amount of outreach activity with interested parties before the
rulemaking process starts or a proposal is published in the Federal
Register. Even after a rulemaking has commenced, Federal Reserve officials
or staff may hold meetings with interested parties. According to Federal
Reserve staff, written summaries of these meetings typically are prepared
and placed on the Federal Reserve Web site and in the public comment file
for the particular rulemaking. Although OCC officials told us that they
held outreach meetings, they did not document the meetings and submit
summaries to the public comment file or document outreach meetings with
consumer groups. In addition, the Federal Reserve has considered ideas for
consumer regulations from participants who have made presentations to the
Consumer Advisory Council and have brought the topics of possible or

ongoing rulemakings before the Consumer Advisory Council to obtain the
views of council members.55

SEC has held special public meetings, such as roundtables, to solicit
additional input from outside parties. According to SEC staff, the agency
uses the meetings to allow commenters to elaborate on their comments and
discuss their comments with others. SEC staff told us that special public
meetings have been held for rule proposals that raise particular public
interest or are technically complex.

Finally, in contrast to OCC, all of the regulators place the comments they
receive on their proposed rulemaking on their Web sites. Posting the
comments on the Internet allows organizations and individuals who are
planning to submit comments to read the comments already received by the
agencies. The objective of the governmentwide E-Gov rulemaking initiative
pilot is to require federal agencies to place public comments on a
centralized Web site to make them easily accessible to the public, and OCC
concluded that it would be inefficient to devote resources to establish a
public comment posting system that would quickly be rendered obsolete by
the E-Gov centralized system.

Observations	The preemption of state law relating to the business of
banking has long been a controversial issue. It seems to have become more
so with consolidation in the financial services industry, which has
resulted in large national banks' presence in virtually every state in the
country. As the regulator of national banks-including some of the nation's
largest-OCC's decisions can be far reaching. OCC can help mitigate some of
the controversy that inevitably will ensue from its preemption decisions
by ensuring that its proposals are thoroughly aired with all relevant
stakeholders.

In OCC's recent preemption rulemakings, controversy focused both on the
agency's legal analysis justifying preemption and on the possible effects
of its rules on state-chartered banks and consumers. Federal law and

55The Federal Reserve's Consumer Advisory Council comprises academics,
state and local government officials, representatives of the financial
industry, and representatives of consumer and community interests. It was
established pursuant to the 1976 amendment to the Equal Credit Opportunity
Act to advise the Federal Reserve on consumer financial services.

executive orders requiring agency accountability and stakeholder
involvement drove public input on these matters. Following requirements in
the APA and 12 U.S.C. S: 43, OCC provided public notice of the proposed
rules and sought public comment. The agency extended the opportunity for
public comment to 60 days rather than the more typical 30 days, and it
considered all of the comments and made changes it deemed appropriate.
With respect to agency rulemakings that preempt state law, the
"Federalism" executive order calls for an "accountable process to ensure
meaningful and timely input by state and local officials" and, because of
the possibility of a conflict between state law and federal interests,
requires agencies to "consult, to the extent practicable and permitted by
law, with appropriate state and local officials in an effort to avoid such
a conflict." Beyond the consideration of comments required by statute, OCC
arranged for formal meetings with CSBS and followed the consultative
process set forth in the letters exchanged by OCC and CSBS in 1999. In the
face of an executive order specifically calling for state and local
consultation on preemption rules, OCC's limited additional effort may have
contributed to an impression that it did not genuinely seek or consider
input from this community. Stakeholders representing such diverse
interests as consumer protection advocates, state bank regulators, state
attorneys general, and some Members of Congress continue to maintain that
the agency did not genuinely seek their input.

Executive Order 13132, entitled "Federalism," affords agencies flexibility
in determining precisely how much input is appropriate in any given
circumstance, and we do not assert that OCC did not follow these
requirements. As a practical matter, however, the agency's own interests
in developing workable regulations and in reaching acceptable resolutions
might have been better served in this case by providing more opportunity
for discussion by those most directly affected. We note that even where
preemption was not an issue, other federal financial institution
regulators took additional actions, such as holding public meetings, to
ensure wider involvement in the public review and comment on proposed
regulations they deemed controversial.

Finally, OCC's rulemaking process would benefit from better
documentation-both written guidance for the process itself and more
thorough documentation that the process is followed in specific
rulemakings. Other financial institution regulators use written procedures
that provide a framework for ensuring their compliance with applicable
requirements. Such procedures can help agency officials ensure that
appropriate criteria for rulemaking-whether in the APA, other laws, or

executive orders-are followed and documented. We were able to determine
the process OCC followed for the preemption rulemakings only by pulling
together information from multiple sources, including the rulemaking
dockets, other OCC documents, and officials and stakeholders we
interviewed. OCC's rulemaking files alone did not contain much of this
information-the files omitted details on both the fact and substance of
OCC communications with key stakeholders. Given the controversial
circumstances surrounding these rulemakings, it might have been in the
agency's best interest to have created better documentation of its actions
and decisions. Moreover, federal internal control standards stress the
importance of such documentation for verifying that management directives
and guidance have been carried out and that the agency has complied with
applicable laws and regulations. Without documentation about matters such
as how decisions were reached, who was consulted, and what their views
were, we were not able to present information in this report that might
have contributed to a better understanding of OCC's process.

  Agency Comments and Our Evaluation

We provided a draft of this report to OCC for review and comment. In
written comments, the Comptroller of the Currency (see app. II) concurred
with our observation that its rulemaking process could benefit from more
detailed written rulemaking procedures. OCC has begun a project to develop
such procedures and expects to complete them by the end of 2005. OCC
expressed concerns about the draft report's observation that staff
memorandums in OCC's rulemaking files did not articulate the analysis
underlying OCC's conclusion that the rules were not "significant" for
purposes of E.O. 12866. OCC commented that the files contained seven
memorandums prepared by OCC's legal and economic policy staff describing
their analysis and conclusions under E.O. 12866. OCC believes the agency
satisfied the requirements of the executive order. During our review, we
examined the staff memorandums for both the visitorial powers and the
banking activities rules. However, the analyses in the memorandums
consisted of stating that the rule was not a "significant regulatory
action," as defined by E.O. 12866 because the annual effect on the economy
was less than $100 million and did not address the other criteria set
forth in the order for determining whether an action is

significant.56 The memorandums did not include or refer to any analysis to
support the conclusion stated. Thus, we continue to maintain that OCC's
documentation did not articulate the analysis underlying its conclusion
that the rules were not "significant" for purposes of E.O. 12866.

Finally, although OCC disagreed with the draft report's observation that
the extent of OCC's consultation with state officials appeared limited, it
intends to make improvements in this area. In OCC's view, its consultation
with state officials complied with the "Federalism" executive order and
was appropriate in view of the nature of the preemption rulemakings.
However, OCC stated that it is committed to enhancing its efforts in
"continuous, open and candid dialogue" with state and federal regulators
on issues such as assuring consumer protection. The Comptroller stated
that he had already had several meetings to further this goal. OCC also
provided technical comments that we incorporated, as appropriate.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of this report until
30 days from the report date. At that time, we will provide copies of this
report to the Comptroller of the Currency and interested congressional
committees. We also will make copies available to others upon request. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors are acknowledged in appendix
III.

Richard J. Hillman Managing Director, Financial Markets and

Community Investment

56In addition to the $100 million measure, the order sets forth other
criteria for determining whether a rule is significant. These include
whether a rule would have an adverse affect in a material way on state,
local, and tribal governments or communities.

Appendix I

                       Objectives, Scope, and Methodology

The Office of the Comptroller of the Currency (OCC) recently issued two
final rules to clarify the applicability of state law to certain national
bank operations, commonly known as the bank activities or "preemption"
rule and OCC's authority to examine, supervise, and regulate activities
authorized for federally chartered or national banks under federal law,
known as the "visitorial powers" rule. The proposed rules and OCC's
rulemaking process drew strong reactions of either support or opposition
from the banking industry, state officials, consumer group
representatives, and some Members of Congress. In our report, we (1)
assess OCC's rulemaking process within the framework of applicable laws
and executive orders, (2) determine the issues raised in the comment
letters on the substance of the preemption rule and describe if and how
the OCC responded to these issues, and (3) identify issues stakeholders
raised about the process OCC used to promulgate both the banking
activities and the visitorial powers rules and determine OCC's response.

To assess OCC's rulemaking process within the framework of applicable laws
and executive orders, we focused on the process OCC used to promulgate its
rules on banking activities and visitorial powers. We reviewed the laws
and executive orders relevant to the two rules: section 553 of the
Administrative Procedure Act, the Regulatory Flexibility Act, the
Congressional Review Act, Executive Order 12866 on Regulatory Review, and
Executive Order 13132, "Federalism." To determine OCC actions in
conducting its rulemaking, we interviewed officials from OCC's Legislative
and Regulatory Activities Division who were responsible for the initial
drafting of the banking activities and visitorial powers proposals and
final rules. In addition, we reviewed OCC's internal files for both
rulemakings, including materials from the dockets.1 The documents we
reviewed included correspondence between OCC officials discussing the
status of the rules, staff memorandums sent to the Chief Counsel and the
Comptroller of the Currency, OCC's written communications to staff from
the Office of Management and Budget (OMB) and the Department of Treasury
(Treasury), and a list of the public commenters for both rulemakings.
Using information from OCC files and the proposed rule in the Federal
Register, we compared OCC's actions related to the rulemakings with the
provisions we identified in relevant laws and executive orders. We
interviewed officials from OMB's Office of

1Public comments as well as other supporting materials (e.g., hearing
records or agency regulatory studies but generally not internal
memorandums) are placed in a rulemaking "docket," which must be available
for public inspection.

Appendix I
Objectives, Scope, and Methodology

Information and Regulatory Affairs and Treasury's Office of General
Counsel. In addition, we interviewed staff from other federal financial
regulatory organizations (the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, and the Securities and Exchange Commission) to obtain
information on their rulemaking processes.

To identify the issues raised in comment letters concerning the banking
activities rule, we conducted a content analysis of 373 comment letters
received by OCC on its bank activities preemption proposal.2 While OCC
received 2,706 comment letters, we identified 2,250 as form letters, most
of which expressed identical concerns about financial subsidiaries of
national banks possibly conducting real estate brokerage activities
without complying with state real estate brokerage licensing laws.3
However, financial subsidiaries currently are not allowed to conduct real
estate brokerage activities, and OCC concluded that these letters were not
relevant to its review of the public comments because the bank activities
preemption proposal did not apply to financial subsidiaries of national
banks.4 Therefore, we decided it was not appropriate to include these form
letters in our content analysis for identifying issues related to the
banking activities rulemaking. Additionally, we identified 83 duplicate
letters (more specifically, copies of letters received in more than one
medium, such as fax, mail and e-mail), which we also excluded from our
content analysis.

To analyze the comments, we first separating the letters into three
categories: letters that supported the banking activities ruling (37),
letters that opposed the ruling (316), and letters that neither supported
nor opposed the ruling (20)-that is, the commenters requested
clarification of certain parts of the proposal. We then randomly selected
and reviewed a "developmental" set of letters from each category and
established an initial set of codes that would further characterize
comments within each category. We applied these codes to a test set of
letters and made refinements. We then applied the refined codes to a
second test set of

2Our analysis focused on comments submitted in response to OCC's bank
activities proposal.

3Most of the public comments were from Realtors.

4The Board of Governors of the Federal Reserve System and the Department
of the Treasury are considering a proposal to permit financial
subsidiaries to do this activity, but have not finalized any proposal as
of the date of this report.

Appendix I
Objectives, Scope, and Methodology

letters, made more adjustments, and established the final codes for each
category of letter. We distributed letters from each category among three
pairs of trained coders, who independently coded their set of letters and
resolved discrepancies to 100 percent agreement. The coders regularly
performed reliability checks throughout the coding process. To further
ensure consistency across coding pairs, one reporting team member met
regularly with each coding pair while they performed their reliability
checks to help resolve any conflicts across the pairs. The coders recorded
their results on a standardized data collection instrument, and one coder
from each pair entered the results into an electronic data file, and 100
percent of the entered data was verified for accuracy. Descriptive
statistics for the codes were computed using SAS statistical software. A
second independent analyst reviewed the data analysis.

To determine the extent to which OCC considered and addressed the
comments, we identified any changes between OCC's proposed and final
version of the rule. We analyzed the preamble to the final rule in which
OCC acknowledged the public comments it received and discussed its
responses. We then identified the rule changes that OCC attributed to
public comments and the public comments OCC acknowledged it did not
address. We verified our analysis with OCC officials from the Division of
Legislative and Regulatory Activities. In addition, we reviewed OCC's
internal memorandums on the banking activities rule to identify OCC's
views on the issues arising from the public comments and its assessment of
the comments.

To identify issues stakeholders raised about the process OCC used to
promulgate the banking activities rule and the visitorial powers rule, we
identified and interviewed interested parties that may be impacted by the
banking activities and visitorial powers rules. We interviewed
representatives of organizations of state officials (Conference of State
Bank Supervisors, National Association of Attorneys General, National
Governors Association, and National Conference of State Legislatures). In
addition, we interviewed officials from consumer organizations (Center for
Responsible Lending, Consumer Federation of America, National Community
Reinvestment Coalition, and National Consumer Law Center). We also
analyzed correspondence from congressional members to OCC that questioned
OCC's rulemaking process and congressional hearing transcripts and
testimonies. To obtain information on OCC's response to the criticisms
regarding its rulemaking process, we interviewed the Acting Comptroller of
the Currency and officials from OCC's Division of Legislative and
Regulatory Activities. Finally, we interviewed staff from the

Appendix I
Objectives, Scope, and Methodology

Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of Thrift Supervision, and Securities and
Exchange Commission on additional mechanisms that they used to solicit
public comments in connection with informal rulemakings they considered
controversial.

Appendix II

Comments from the Office of the Comptroller of the Currency

Appendix II Comments from the Office of the Comptroller of the Currency
Appendix II Comments from the Office of the Comptroller of the Currency

Appendix III

                     GAO Contact and Staff Acknowledgments

GAO Contact Richard J. Hillman, (202) 512-8678

  Staff Acknowledgments

(250211)

In addition to the individual named above, Katie Harris (Assistant
Director), Julianne Stephens Dieterich, Nancy Eibeck, Jamila Jones, Landis
Lindsey, Alison Martin, Kristeen McLain, Marc Molino, Barbara Roesmann,
Paul Thompson, and Mijo Vodopic made key contributions to this report.

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