States Fight New Effort To Preempt Consumer Protection Laws

Attorney General Spitzer and six other attorneys general today called on federal banking authorities to reject a proposal that would undercut the states' ability to enforce consumer protection laws.Spitzer - joined by the attorneys general of Connecticut, Illinois, Iowa, New Mexico, North Carolina and Vermont - submitted formal comments in opposition to a new regulatory proposal affecting state-chartered banks.

The proposal, which is currently before the Federal Deposit Insurance Corporation (FDIC), would exempt state-chartered banks from complying with most state consumer protection laws, including laws related to predatory lending, fair lending and community reinvestment. "This is another shameless attempt by the financial services industry to undermine state consumer protection laws," Spitzer said.

The Financial Services Roundtable, an industry lobby group, sought the new FDIC regulations, arguing that complying with different state consumer protection statutes is burdensome for its member banks and financial institutions.Spitzer and the other attorneys general said that the laws about which the industry is complaining are bedrock consumer protection statutes that have been on the books for decades and protect the states' most vulnerable citizens - low-income, elderly and minority consumers. The attorneys general believe that the proposed preemption rules would encourage banks to migrate to states with the least restrictive laws.

"Rules like those the banking industry proposes would act as an incentive for states to engage in a ‘race to the bottom’ as they vied with each other to attract banking business at the expense of consumer protection," Spitzer said, noting that federal preemption for usury rates has already resulted in the largest credit card issuers moving to states with no limits on interest rates. The attorneys general also argue that the FDIC lacks the authority to adopt such rules.

The proposal by the Financial Services Roundtable comes after a controversial action last year by U.S. Office of the Comptroller of the Currency (OCC). The OCC adopted regulations to shield nationally-chartered banks from enforcement of state consumer protection laws. Spitzer's office has challenged these preemption regulations in a lawsuit against First Horizon Loan Corporation, a subsidiary of a national bank.Spitzer continued to fight all attempts by the banking industry to undermine basic consumer protection statutes.

Attachments:

• FDIC Comments - PDF Format

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