Five prominent consumer advocacy groups have banded together to protest a federal agency's decision to ignore a significant new law intended to help clean up the regulatory mess that contributed to the U.S. financial meltdown several years ago.
In a lengthy letter to the Office of the Comptroller of the Currency (OCC), the Center for Responsible Lending, Consumers Union, National Consumer Law Center, Public Citizen and Sargent Shriver National Center on Poverty Law argued that the OCC's insistence on broad federal preemption of state banking laws ignores the Dodd-Frank mandates.
"State laws that protect consumers from abusive bank conduct without preventing or significantly interfering with national bank powers are not preempted under the Dodd-Frank preemption standard," the letter stated. "The OCC cannot preempt state laws as applied to contracts entered into after July 21, 2010, without following the standards and procedures of the Dodd-Frank Act. The OCC’s reaffirmation of its broad preemption regulations without regard to any of the Dodd-Frank limitations cannot withstand scrutiny."
This discussion might seem irrelevant to consumers. But in fact, bank customers might want to pay attention to the issue of whether the federal government should be allowed to so easily brush aside state laws that affect the nation's largest banks.
The issue of "preemption" is complicated, but to simplify:
• The federal government has a general right in certain instances to decide that its laws will take precedence over individual states' laws.
• This preemption of state laws was one reason why financial regulation was so lax prior to the financial meltdown.
• To change that, Congress decreed, as part of the Frank-Dodd Act, the federal government couldn't so easily kick aside state banking laws even if they affect large national banks.
• Rather than follow the new rule, the OCC, which regulates these big institutions, has decided to ignore it.
Preemption might seem like a technicality, but these laws affect a long list of personal financial products from savings accounts and deposit certificates to credit cards and mortgages and which sheriff runs the town.
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