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House FSC Approves Amendment Restricting OCC Preemptions

The House Financial Services Committee October 21 approved a key amendment to a financial regulatory reform bill offered by Reps. Mel Watt (D-N.C.) and Dennis...
October 21, 2009

The House Financial Services Committee October 21 approved a key amendment to a financial regulatory reform bill offered by Reps. Mel Watt (D-N.C.) and Dennis Moore (D-Kan.) that would make national banks and federally chartered savings associations subject to a broad range of state consumer protection and financial services laws.

Approval of the amendment came as the panel continued several days of votes on a bill (H.R. 3126), offered by Committee Chairman Barney Frank (D-Mass.). The measure would implement the core of a key administration regulatory reform proposal by establishing a Consumer Financial Protection Agency to protect consumers from abusive financial practices.

Under the amendment, the Office of the Comptroller of the Currency (OCC) could find a state law preempted, but only on the basis of "substantial evidence" that a particular provision "prevents or significantly interferes with" a national bank's exercise of a power "explicitly" granted by Congress. The amendment draws heavily on language in Barnett Bank v. Nelson, 517 U.S. 25 (1996), a major U.S. Supreme Court decision on preemption.

Rep. Ed Royce (R-Calif.) said a national market, along with its efficiencies, better serves consumers, predicting that the Watt-Moore amendment would lead to "a myriad of lawsuits" against financial institutions by state attorneys general. But Watt said the U.S. constitutional system has always balanced the roles of the federal government and the states, even at a cost. "Federalism is inefficient," Watt said.

The committee also defeated by a 29-38 vote a secondary amendment to the Watt-Moore amendment offered by Rep. Jeb Hensarling (R-Texas) that would have preserved uniform nationwide standards for federal financial institutions. Hensarling's amendment mirrored an amendment that was to have been offered by Rep. Melissa Bean (D-Ill.), who did not attend the markup because of a family illness. In a statement, Bean said she had planned to withdraw the amendment.

The committee also defeated by a 28-38 vote an amendment offered by Reps. Ed Royce (R-Calif.) and Scott Garrett (R-N.J.) that would have established shared rule writing authority between the CFPA and the federal financial institution regulators.

What It Means to Agents:  Over the past decade, the Office of the Comptroller of the Currency (OCC) has actively declared state insurance laws preempted, based solely on its interpretation of federal banking laws. Restricting the OCC's ability to declare state insurance laws null and void is a victory for state insurance regulation. The McCarran-Ferguson Act gives interstate oversight of insurance to the states. Rep. Watt's amendment makes clear that federal regulators may not routinely interfere with the states.

Update:  PIA Director of Federal Affairs Mike Becker, who is attending this hearing, tells us another amendment may be offered, by Rep. Moore, stripping insurance from inclusion in the overall bill to establish a Consumer Financial Protection Agency (H.R. 3126).