Preemption of State Banking Rules

States have long played a critical role in setting banking policy and overseeing both local and national financial institutions. In crafting banking laws, Congress has generally chosen to establish a basic framework of rules, allowing states to adopt additional rules and higher standards, particularly with regard to consumer protection.

In recent years, however, two federal agencies have sharply limited state authority over national banks. The Office of the Comptroller of Currency (OCC, the chief regulator of national banks) and the Office of Thrift Supervision (OTS, which regulates thrifts, savings and loans) have preempted dozens of state banking laws designed to protect consumers, ensure fair lending, and maintain competition.

In most cases, there are no comparable federal laws. Consumers have instead been left at the mercy of an increasingly consolidated, costly, and sometimes abusive industry. State authority has been so circumscribed that state lawmakers now find themselves virtually powerless to stop a growing number of new consumer abuses, including predatory lending, payday loans, and excessive bank fees.

The dismantling of state banking laws is explored in-depth in an article, "Rogue Agencies Gut State Banking Laws," in the Fall 2001 issue of The New Rules.

For more about the article, see New Rules Project Press Release - September 4, 2001

Below are links to additional resources, both general resources on OCC and OTS preemption actions and resources on specific consumer banking issues.

General Resources

• OCC Watch - a web site maintained by the State Public Interest Research Groups, PIRGs
• Summary of Conference Report on the 1994 Riegle-Neal Act - in the Conference Report that accompanied the 1994 Riegle-Neal Act, Congress admonished the OCC for its "inappropriately aggressive" preemption actions.
• Role of OTS and OCC in the Preemption of State Laws - This U.S. General Accounting Office report describes how the OCC and OTS interpret their authority to preempt state laws and their procedures for doing so, and lists some of the agencies' recent preemption decisions, February 2000.
• Joint letter from several consumer organizations urging Congress to investigate the OCC's preemption actions, September 1999.
• OCC's Aggressive Preemption of States' Consumer Banking Protections - Statement from the Consumers Union, July 1998.

"Lifeline" Bank Account Laws

• US PIRG Consumer Program Director Ed Mierzwinski's testimony to the House Banking Committee regarding the OCC's preemption of lifeline bank account laws, June 2000.

ATM Surcharge Bans

In 1999, the cities of San Francisco and Santa Monica enacted ordinances banning ATM surcharges within their borders. Two national banks, Bank of America and Wells Fargo, with the support of the OCC, filed a lawsuit against the cities contending that states and cities do not have the authority to regulate ATMs operated by national banks.

The courts rejected the bans in the lower court and on appeal, holding that cities have no right to regulate fees imposed by national banks.

Similarly, courts rejected the interpretation of Iowa's Electronic Funds Transfer law that had prevented ATM surcharges in that state. Again the courts found that federal regulation of national banks preempted state and local regulatory authority. The Iowa Credit Unions League reports that banks pocketed an additional $10 million in the first year after the ban was ended, leading to record profits in 2003.

In May 2003 the U.S. Supreme Court refused to hear an appeal of the San Francisco/Santa Monica decision. Consumers must now rely on Congress, where no bill limiting ATM surcharges has ever made it out of committee.

For more on ATM surcharges, efforts to ban them, and background information on the court case, see ATM Surcharge Bans under the Finance sector and back issues of the ATM Surcharge e-Bulletin.

• The San Francisco City Attorney maintains a web page on the court case, including links to legal briefs filed by both sides.
• Santa Monica City Attorney's opening brief.
• The OCC's amicus brief in support of the two banks arguing that state and local ATM laws are preempted by federal statute.
• Nine state attorneys general jointly filed a brief in support of the right of San Francisco and Santa Monica, and cities and state generally to enact ATM surcharge bans. Here's the press release from California Attorney General Bill Lockyer.
• Several consumer organizations also filed a legal brief in support of the cities.
• US PIRG's comment letter condemning proposed rule change by Office of Comptroller of the Currency, OCC intended to undermine attempts by cities of Santa Monica and San Francisco to reinstate their ATM surcharge bans, March 2001.

Predatory Lending

• Iowa Attorney General Tom Miller's congressional testimony on predatory lending, which discusses preemption of state laws, July 26, 2001.
• In jointly filed comments to the OTS, forty-four state attorneys general contend that the agency has contributed to the predatory lending crisis through its overly aggressive preemption of state banking laws, July 7, 2000.
• ACORN's Predatory Lending Campaign
• Coalition for Responsible Lending
• National Consumer Law Center's Predatory Lending Documents

Payday Loans

Payday lenders and check cashing centers charge fees of up to 10 percent for their services. Often, banks provide business loans for payday lenders opening in low-income neighborhoods at the same time they are closing their own branches in the same neighborhoods. Organizations like ACORN and US PIRG are fighting to make business loans to abusive lenders count against banks in their Community Reinvestment Act evaluations.

• Rent-a-Bank Payday Lending: How Banks Help Payday Lenders Evade State Consumer Protections - 2001 report from US Public Interest Research Group and the Consumer Federation of America.
• Consumer Federation of America's Payday Loans Information
• Consumers Union Payday Loans Information