OCC Preemption Rule - NAR Updates
Use this menu to jump to a particular update:
Apr. 12: NAR President Testifies Before Senate Committee
Feb. 20: NAR's Comment Letter; Talking Points for REALTORS®
Jan. 8: OCC Rule Finalized
Dec. 16: Rule Status and Anticipated Outcome
BACK to the Preemption Rule Field Guide
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OCC Preemption Rule Update - Apr. 12, 2004
This update reflects new informational items and NAR activities relative to the OCC Preemption Rule since the February 20, 2004 update.
NAR President Testifies Before Senate Committee
On April 7, 2004, NAR President Walt McDonald testified before the Senate Committe on Banking, Housing, and Urban Affairs against the recently adopted Office of the Comptroller of Currency (OCC) rule on federal preemption of state lending and consumer protection laws. Click here to see a copy of Walt McDonald’s testimony.
Witnesses supporting the rule were Comptroller John Hawke, the American Bankers Association, the Consumer Bankers Association and former FDIC Chairman Bill Isaac. Witnesses opposed to the rule were NAR, National Association of Attorneys General, Conference of State Bank Supervisors, Center for Responsible Lending, and a law professor who discussed legal precedents that hold the OCC does not have the authority to adopt such sweeping preemption.
Chairman Shelby asked a number of questions that indicated he has some concerns about the rule, and whether the OCC had overstepped its authority. Senator Sarbanes strongly argued that the OCC did not have the authority to adopt this rule and that it is a bad rule as well. No Senator spoke in favor of the OCC rule.
In addition to this hearing, Senator John Edwards (D-NC) introduced a resolution under the Congressional Review Act to repeal the recently adopted OCC federal preemption rule. The OCC rule preempts state lending, licensing, and consumer protection laws for national banks and their operating subsidiaries. The rule is quite controversial with all of the states' governors, attorneys general, banking supervisors, legislatures, consumer groups and NAR opposed to it. Click here to see a copy of Senate Joint Resolution 32.
The Congressional Review Act allows Congress to review and repeal federal regulatory actions under expedited procedures. It has only been successfully employed once since its enactment in 1996. In that case, Clinton Administration ergonomics regulations were repealed.
NAR is coordinating its efforts with those opposed to the rule to support this and other attempts to repeal the OCC preemption provisions.
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OCC Preemption Rule Update - Feb. 20, 2004
This update reflects new informational items and NAR activities relative to the OCC Preemption Rule since the January 8, 2004 update.
Overview
As we reported, the Office of the Comptroller of the Currency (OCC) issued a final rule identifying types of state laws that are preempted for national banks, including: mortgage lender/broker licensing laws, escrow account laws, credit score and insurance score disclosure laws, and anti-predatory lending laws. The rule is effective February 12, 2004.
On February 13, 2004 we sent a letter to the Comptroller of the Currency (OCC) regarding our continued opposition to the rule on applicability of state law to the operations of national banks and their operating subsidiaries. As noted in our comment letters to the OCC it is our belief that the OCC has ignored congressional intent and overstepped their authority in granting broad preemption of state real estate lending related laws and consumer protections. We ask that you urge the OCC to rescind this rule.
As you may know from press reports, the OCC argues that REALTORS® are unaffected by this rule, but that is incorrect, according to our counsel. There are both immediate and future effects caused by this rule. Our members involved in mortgage and title services, appraisal, and home inspection remain obligated to apply for licenses and register their businesses, while national banks and their operating subsidiaries are now exempt from these requirements. That will lead to increased costs for our members, and further consolidation within a few large national banks and their operating subsidiaries, which have the added benefits that come with their federal charter.
If the Fed/Treasury proposed rule to allow financial holding companies and national bank subsidiaries to operate real estate brokerage, management and leasing companies is finalized, it is likely that the precedent set by this OCC rule would preempt state real estate brokerage licensing and continuing legal education requirements for national banks and their subsidiaries. This could be devastating for both our members and homebuyers and -sellers across our country.
Talking Points in Response to Proponents of the OCC Action:
REALTORS® know that the OCC’s preemption regulation applies to national banks and their operating subsidiaries. We know that the pending Treasury/Federal Reserve regulation would allow financial subsidiaries to broker and manage real estate. The banking industry proponents of the OCC rule want to focus on just the OCC rule for the here and now. REALTORS® can not.
The banking industry operates under a set of laws and regulations that run along parallel tracks. Changes in one set of rules may affect one group of banks for the moment. But banking lobbyists know full well that regulatory change in one place can lead to or re-enforce demand for changes in other regulatory arenas. Banking regulation does not occur in isolation as the industry advocates want to suggest.
REALTORS®, looking at the broader impact of banking and financial services recent and pending regulations, connected the dots in the banking and financial services industry’s apparent effort to exploit the regulatory process to the disadvantage of
Smaller community banks and state banks that are unlikely to offer the same products the multistate megabanks will;
Real estate companies that must abide by state regulations regarding business licenses and corporate registration costs; and
Consumers that the megabanks want to brand their proprietary products to -- if the prospective customer’s wealth profile fits the bank’s plan.
The issue for REALTORS® is as much about recognizing the affects of linking OCC regulation and market practices that give market advantage to megabanks as the barefaced attempts of the Federal Reserve/Treasury real estate regulation to make major policy through the regulatory process. Did Congress intend for national banks to sidestep state laws through new federal regulation?
This is a bigger issue that REALTORS® may justifiably be paranoid about given the banking and financial services industries’ initiatives after Congress adopted the Gramm-Leach-Bliley Act a few years ago. The bigger issue can be resolved to ease REALTOR® “paranoia” if the Treasury-Federal Reserve rule is withdrawn.
Conclusion:
On March 1, 2004, NAR will be hosting a meeting in DC with a sub-group of association executives as well as member volunteers. At that time we will be developing an action plan for further action. We will be back in touch with you as to how you and your members can help with this troublesome regulatory issue. Please call Joe Ventrone at jventrone@realtors.org or 202-383-1095 or Lynn King at lking@realtors.org or 202-383-1156 if you have any questions. Regarding Congressional efforts, please call Ed Miller at emiller@realtors.org, or 202-383-1171.
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OCC Preemption Rule Update - Jan. 8, 2004
This update reflects new informational items and NAR activities relative to the OCC Preemption Rule since the December 16, 2003 update.
OCC Finalizes Rule Preempting State Banking and Lending LawsOn January 7, 2004, the Office of the Comptroller of the Currency (OCC) took action to shore up the agency’s supervisory powers of over 2,200 national banks by issuing a final rule that identifies types of state laws that are preempted for national banks and their operating subsidiaries. The proposed rule and final rule are almost identical, however, the OCC declined to make a statement that the agency had the authority to occupy the field of national banks’ real estate lending activities.
Final Rule
The OCC logged in over 2632 comment letters; about 75 percent were from REALTORS®, state associations and local boards – all opposing the proposed rule. The NAR submitted a detailed comment letter to the OCC challenging the agency’s legal authority to issue a broad regulation preempting state real estate lending law and urging the agency to withdraw the proposed rule.
In addition to the general public comment letters, a number of Members of Congress also weighed in with the OCC. One high-profile letter in opposition to the proposed rule came from all 10 minority members of the Senate Banking Committee. Additionally, Representative Sue Kelly (R-NY 19th) a senior member of the House Financial Services Committee led a bipartisan sign-on letter with a number of her colleagues expressing concern about the OCC’s authority to preempt state laws.
Throughout the rulemaking process, the Comptroller and Deputy Comptroller participated in a number of public forums where they repeatedly defended the agency’s position – legislative history, supported by judicial precedent, reinforce the agency’s authority to preempt application of certain state laws to national banks.
In issuing the final regulation, the Comptroller stated: “[T]he ability of national banks to operate under consistent, uniform national standards administered by the OCC will be a crucial factor in their business future.”
Scope of Final Rule
Real Estate Lending
The OCC is amending their regulations identifying types of state real estate lending laws that are preempted including, but not limited to:
Licensing, registration, filings, or reports by creditors.
Impact: national banks and subsidiaries are exempt from state laws that impose licensing requirements on national banks and their operating subsidiaries in order to engage in an authorized activity. Mortgage broker licensing, loan officer registration, escrow agent licensing, and other professional licensing laws are not applicable to national banks and their operating subsidiaries.
Laws that limit terms of credit, including schedule for repayment of principle and interest, amortization of loans, balance, payments due, minimum payments, or term to maturity of the loan, including the circumstances under which a loan may be called due.
Impact: national banks and subsidiaries are exempt from state laws (mostly anti-predatory lending) that limit balloon payments; prohibit negative amortization; restrict advance payments, late lees, prepayment penalties, default rates, acceleration of indebtedness and rights to cure a default; restrict financing of credit insurance, debt suspension and debt cancellation fees; restrict refinancings within a certain period of time or on certain types of loans; require counseling before making certain types of loans; limit underwriting standards; restrict home improvement loans; require notice to borrower before originating certain types of loans and before initiating foreclosure proceedings; discourage use of alternative dispute resolution (i.e. arbitration); subject purchasers of certain loans to liabilities as a result of lender actions.
Access to, and use of, credit reports.
Impact: national banks and subsidiaries are exempt from state laws that condition use of credit reports by national banks, including a requirement to provide consumers with a copy of their credit report and disclosure of credit score if part of the credit report.
Escrow accounts, impound accounts, and similar accounts.
Impact: national banks and subsidiaries are exempt from state laws that set forth escrow requirements for certain types of loans. For example, some state laws require payment of interest on mortgage escrow accounts.
Disclosure and advertising.
Impact: national banks and subsidiaries are exempt from state laws that restrict national banks from advertising services. Also, state laws that require national banks to make disclosures in connection with credit application forms.
Banking and Other Lending ActivitiesIn addition to identifying types of state real estate lending laws that are preempted, the OCC is adding preemption provisions to their banking rules including, but not limited to:
State licensing or registration requirements.
Access to, and use of, credit reports.
Mandated statements and disclosure requirements.
Special purpose savings services.
Some examples of state laws that potentially may be impacted by preemption under the new sections of banking and other lending activities include state laws that:
Effect national banks’ ability to sell insurance.
Require national banks to be licensed to sell reclaimed property (i.e., vehicles).
Require certain language and information be placed on the billing statements credit card issuers provide their cardholders.
Restrict national banks from charging ATM fees.
Require national banks to keep records and file notifications and data with a state agency.
State Laws Not Preempted
In the final rule, the OCC reaffirmed that states retain power to regulate national banks in such areas as contracts, debt collection, acquisition and transfer of property, and taxation, zoning, criminal, and tort law. Furthermore, the national bank branching statute (Riegle-Neal Interstate Banking and Branching Efficiency Act) makes applicable the laws of the host state regarding community reinvestment, consumer protection and fair lending to branches of an out-of-state national bank located in the host state to the same extent as those laws apply to state chartered institutions.
For more information contact Lynn King at lking@realtors.org or 202-383-1156.
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OCC Preemption Rule Update - Dec. 16, 2003
Overview
As we reported at NAR’s annual conference, the OCC took exceptional notice of REALTOR® activity commenting in opposition to their proposed rule preempting state banking and real estate lending laws. The final comment numbers are in:
There were a total of 2632 comment letters submitted.
About 75% (1957) of the comment letters were from REALTORS and state associations and local boards.
The following state associations commented (19 total): AL, ND, NJ, IL, MO, TX, WY, NC, FL, MI, MA, OH, IN, CT, WA, SC, CA, MD and ME.
12 local boards commented.
The majority of REALTOR® comment letters were from: NJ, AL, CA, and MI.
Only 40 banks and banking associations (combined) commented.
In addition to the general public comment letters, a number of Members of Congress also weighed in with the OCC. One high-profile letter in opposition to the proposed rule came from all 10 minority members of the Senate Banking Committee. Additionally, Representative Sue Kelly (R-NY 19th) a senior member of the House Financial Services Committee led a bipartisan sign-on letter with some of her colleagues of the Committee expressing concern about the OCC’s authority to preempt state laws.
OCC Defends Preemption Authority
Since November, the OCC has participated in a number of public forums where they repeatedly defended their position – legislative history, supported by judicial precedent, reinforce the agency’s authority to preempt application of certain state laws to national banks. Recently, Julie Williams, the OCC’s Chief Counsel and First Senior Deputy Comptroller, spoke at a consumer finance conference where she emphasized that the agency is simply following the doctrine of federal preemption rooted in the Constitution and imbedded in the foundation of the dual banking system.
And just last week, Comptroller Hawke sent a detailed response to the minority members of the Senate Banking Committee arguing that the Senators have not accurately interpreted national bank preemption precedents and earlier preemption positions of the OCC. Furthermore, the Comptroller made it a point to specifically reference “unfortunate misperceptions of [the OCC’s] position in recent public discussions of the issues.”
Rule Status and Anticipated Outcome
The rule has yet to be finalized and those close to the OCC are indicating a final rule may be issued mid-2004 (the Comptroller’s term is up October 2004). Given the OCC’s adamant defense of their proposed rule, it is likely that the final rule will closely resemble the proposal. Consumer groups and organizations representing state interests are also anticipating an unfavorable final rule and are readying themselves for filing suit when the final rule is issued.
Please contact Joe Ventrone at jventrone@realtors.org or 202-383-1095 or Lynn King at lking@realtors.org or 202-383-1156 if you have any questions.
