Compromise Preserves State Power to Protect Consumers from Abuses by National Banks in Proposed U.S. House Bill

Yesterday, the U.S. House Banking Committee defeated amendments that would have gutted provisions in law to restore state powers to protect consumers of national banks.  Instead, the Committee approved compromise language that, while not as expansive in the protection of state legislation as the Obama administration had urged, is still a significant victory overall against large financial interests.  By a vote of 29-38, the committee defeated a proposed amendment by Rep. Jeb Hensarling (R-Texas) that would have preempted all state regulation of national financial institutions.

As we detailed last month, the provisions to restore state authority to enforce consumer protections against abuses by national banks have been one of the most contentious parts of the new legislation (see also our conference call on the issue).  The amendment that was approved would give the Office of the Comptroller of the Currency, which regulates national banks, the optional power to override the states, but only if it found that the state law “significantly” interfered with federal regulatory policies.  Since under the Bush Administration, the Office of the Comptroller had claimed the right to preempt state law automatically without any evidence of interference with federal policies, this will be a significant change in legal standards.

Especially given the stated Obama administration strengthening of state regulation, this amendment should preserve the ability of states to promote stronger consumer fraud law, repossession, foreclosure, and collection law reforms applied to national banks in coming years.

Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Summary of Preemption and Relation to State Law Provisions in The Consumer Financial Protection Agency Act of 2009: H.R. 3126