NCSL Opposes Rule Affecting State Authority Over National Banks

The National Conference of State Legislatures (NCSL) has let the Office of the Comptroller of the Currency know that it opposes a proposed rule that would eliminate state authority over national banks and all their diverse range of non-banking operating subsidiaries.

"The OCC proposal threatens to undermine the integrity of the dual banking system and moves toward a centralized, European-style regulatory model," according to NCSL’s written comments signed by Delaware Representative Donna Stone and Illinois Representative Frank Mautino, chair and vice-chair, respectively, of NCSL’s Financial Services Committee. "The OCC proposal would sweep away virtually all state consumer protections and leave banking consumers across the country vulnerable to deceptive trade practices."

The OCC’s rule would supercede all state laws governing national bank activities except in cases when Congress has mandated state-law standards or state laws that have only an "incidental" effect on national banks.

According to NCSL, Stone and Mautino said that the United States’ dual banking system is critical to the strength and vitality of the national economy.

"Unlike in Canada, Europe and other developed countries, the American system has promoted the development of a decentralized banking market where banks of different sizes efficiently distribute credit to all sectors of the U.S. economy to serve the diverse needs of local, regional and national markets," they said. "Regulatory decentralization is especially important to the strength of community banking, which helps disperse decision-making vital to small business lending and job creation across America rather than concentrated in the nation’s financial capitals."

The OCC rule would also prohibit states licensing, examining and regulating state-chartered non-bank subsidiaries of national banks, NCSL reported. This could keep some finance companies as well as title, leasing, mortgage, real estate and check cashing companies from state requirements and consumer protections, NCSL said.

State lawmakers are aggressively asking Congress to tell the OCC to withdraw the proposal and to look closely at the enormous changes that would occur in the nation’s banking system if the rule were enacted.

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