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OCC, Bankers Concerned Over Loss of Preemption

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While the proposed consumer financial regulator has its supporters, bankers are concerned that the new regulator could have too much power. Another big related issue is the proposed elimination of federal preemption.

The American Bankers Association issued a statement Wednesday indicating that House Financial Services Committee Chairman Barney Frank (D-Mass.) has made revisions to a draft of the Consumer Financial Protection Agency bill that addresses a number of concerns by the trade group.

Among the revisions are a better funding structure for the proposed agency, the elimination of a requirement that banks offer government designed “plain vanilla” products and a stronger mechanism for handling consumer disputes.

The concerns were raised by the trade group in July testimony before the House Financial Services Committee. But the Washington, D.C.-based group is still concerned that the new regulator would be able to “legislate” its own rules. ABA is also concerned that the bill removes preemption of state and local laws.

But the National Association for the Advancement of Colored People noted in its own announcement earlier this month that the proposed agency “would focus on the core reforms that will address the causes of the current crisis, make the system more stable and resilient and give the government tools to better anticipate, avoid and address a potential future crisis.” The group also want to make civil rights an important component of the new agency’s stated mission.

“The CFPA must have the appropriate power and resources to vigorously enforce the fair lending laws under its auspices — Equal Credit Opportunity Act, Home Mortgage Disclosure Act, Community Reinvestment Act and other appropriate fair lending statutes,” the NAACP said. “It must have sufficient authority and resources to conduct fair lending examinations, engage in compliance activities, and write rules.”

U.S. Treasury Deputy Assistant Secretary Eric Stein spoke last month at the Women in Housing and Finance August Public Policy Luncheon about the proposed CFPA. The group, which was scheduled to hear from Comptroller of the Currency John Dugan on Thursday about the proposed regulator, said the presentation provided valuable insight into the thought process involved in the development of the CFPA.

Dugan issued a statement on Thursday indicating that while the non-banks who originated some of the most toxic subprime loans would be regulated under the Treasury’s proposal, the repeal of federal preemption should be rejected by Congress. He claimed that uniform national standards have proven to be a powerful engine for prosperity and growth and noted that it was state-regulated non-banks that caused all the problems with subprime foreclosures..

“This radical change is fundamentally at odds with the concept of efficient national standards for national products and services offered across state lines in national markets — a concept that has been central to the economic prosperity of the United States since the adoption of our Constitution, and one that has been critical to the flourishing of our national banking system since 1863,” Dugan stated. “The Treasury proposal would allow states to adopt and enforce different rules, which would result in a patchwork of federal and state laws that disadvantage consumers and give rise to significant uncertainty about which sets of standards apply to institutions conducting a multistate business.”

Dugan highlighted the confusion with determining whether to apply the laws in the state where the consumer is located or where the bank is based.

A study from Empiris supported Dugan’s position. The report found that national standards have allowed banks to issue a consistent set of terms for mortgages. The report recommended the creation of new federal rules for the problem areas while taking advantage of the gains uniform national standards can offer the lending industry.

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