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Civil Justice Submits Comments to the Office of the Comptroller of the Currency Regarding the Proposed Regulations to Implement the Dodd-Frank Wall Street Reform and Consumer Protection Act

Jun 28
Written by: Civil Justice
Tuesday, June 28, 2011

   On June 27, 2011, Civil Justice submitted to the Office of the Comptroller of the Currency (OCC) its comments regarding the OCC’s proposed regulatory amendments in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Act was created to address serious problems with how consumers are protected from fraudulent or otherwise unethical behavior on the part of lenders, including mortgage companies.  Chief among these problems is the OCC’s 2004 regulation implementing the National Bank Act, which prevented a great number of state laws that protected consumers from abusive lending practices from being enforced against national banks.  This preemption of state law enabled national banks to engage in predatory and reckless lending practices and played a direct and significant role in causing the current financial crisis.  
   Unfortunately, the proposed regulations do not solve this problem, but rather amount to more of the same.  For example, while the Act specifically restricts the OCC’s ability to preempt a state consumer financial law to situations in which such a law “prevents or significantly interferes with the exercise by the national bank of its powers,” the proposed regulations actually retain in all but name the far lower “obstruct, impair, or condition” standard.  The proposed amendments also ignore the Act’s requirement that the OCC only preempt state laws on a case-by-case basis, and only after consulting with the Consumer Financial Protection Bureau.  Moreover, while the Act prohibits the OCC from preempting a state law unless there is “substantial evidence” that the law “significantly interferes with bank powers,” the proposed amendments would leave much of the 2004 regulatory scheme intact without such a showing. 
   Far from correcting the significant problems that the Dodd-Frank Act was intended to address, the OCC’s proposed regulations would result in national banks remaining immune from broad areas of state consumer protection laws, leaving them free to continue their dangerous practices.  This would be a disaster for consumers.  In our comments, Civil Justice proposed several changes to prevent this result.  First, we proposed that the regulations emphasize the limited scope of the National Bank Act, and make clear that it does not apply to state laws regulating foreclosures or unfair and deceptive practices, which generally apply equally to all commercial transactions.  Second, we proposed that the regulations make clear that the National Bank Act does not enable national banks to skirt state law when they purchase assets or liabilities from state-regulated entities to which state unfair-and-deceptive-practices laws apply.  Third, we proposed that the regulations take such steps as are necessary to prevent the abuse of the National Bank Act by national banks that have been using it as a loophole.  Lastly, we proposed that the regulations make clear that the National Bank Act’s protections do not extend to buyers of toxic assets, for whom these protections were not intended to apply.  We hope that the OCC will seriously consider our proposed changes and rectify the serious deficiencies in its proposed regulations.  Otherwise, the Dodd-Frank Act will someday be remembered as a lot of “sound and fury, signifying nothing.”

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