* Changes required by Dodd-Frank law
* OCC has faced criticism for pre-empting state laws
(Adds comments from law professor and background)
By Dave Clarke
WASHINGTON, May 25 The federal regulator of the
largest U.S. banks will have less power to shield these
national banks from state consumer financial laws, under a
proposal released on Wednesday.
The changes to the Office of the Comptroller of the
Currency rules are required by last year's Dodd-Frank financial
Critics of the OCC charge that in the run-up to the
2007-2009 financial crisis, the agency was too aggressive in
preventing states from enforcing their consumer protection laws
on national banks, and took an expansive view of its ability to
do so under the National Bank Act.
The OCC has said it uses its pre-emption authority to
protect national banks from a patchwork of state laws -- such
as those that apply to credit cards and mortgages -- that can
be contradictory and difficult to comply with.
Bank of America (BAC.N), JPMorgan Chase (JPM.N) and Wells
Fargo (WFC.N) are among the banks the OCC regulates.
The OCC proposal released on Wednesday lays out the
additional hurdles the agency must pass before being allowed to
pre-empt a state consumer protection law.
The OCC would have to review each state law case-by-case
and would have to consult the new Consumer Financial Protection
Bureau when seeking to pre-empt a state law.
The Dodd-Frank law also requires the OCC to meet a stricter
standard on pre-emption by showing that a state law "prevents
or significantly interferes" with a national bank's ability to
The agency's rule refers to this standard as a "starting
point," which has led some critics to charge that the OCC is
seeking to maintain broader pre-emption powers than the law
"They're trying to preserve wiggle room," Arthur Wilmarth,
a law professor at The George Washington University, said in an
interview. Wilmarth also works as a consultant to the
Conference of State Bank Supervisors.
Even before Dodd-Frank, the OCC's pre-emption powers were
threatened, namely through the 2009 Supreme Court decision in
Cuomo v. Clearing House Association LLC.
The case involved whether the OCC could block states from
pursuing law enforcement actions against banks by arguing they
did not have "visatorial" powers over the banks, which are
supposed to be defined under federal law and can include such
things as bank exams and administrative penalties.
The court ruled that this OCC interpretation was too broad
and the agency could not prevent the state of New York from
enforcing its fair lending laws in a case that involved the New
York attorney general's office investigating possible racial
discrimination in mortgage lending.
The OCC said the proposal on Wednesday reflects the court's
The OCC proposal is out for comment for 30 days.
(Reporting by Dave Clarke; Editing by Dave Zimmerman, Tim
Dobbyn and Carol Bishopric)