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OCC ISSUES FINAL RULES ON NATIONAL BANK PREEMPTION AND VISITORIAL POWERS

On January 7, 2004, the Office of the Comptroller of the Currency (OCC) issued two long-awaited rules. The first clarifies what types of state laws apply to national banks, while the second clarifies issues related to the OCC’s exclusive visitorial powers over national banks. The rules will take effect 30 days after publication in the federal register.

The preemption rule specifies the types of state laws that do not apply to national banks’ lending and deposit activities and the types of state laws that generally do apply to national banks. The lists of types of state laws that are not preempted in the final rule are substantively the same as in the proposed rule.

The final rule states that except where made applicable by Federal law, state laws that obstruct, impair or condition a national bank’s exercise of its lending, deposit-taking or other federal powers do not apply to national banks. In its comments, the OCC stated that the final rule does not entail any new powers for national banks or any expansion of national banks’ existing powers. The OCC stated that the preemption standards in the final rule are consistent with the standards articulated by the United States Supreme Court.

The final rule contains new provisions prohibiting the making of any type of consumer loan based predominantly on the bank’s realization of the foreclosure value of the borrower’s collateral without regard to the borrowers ability to repay the loan. The final rule also prohibits a national bank from engaging in practices that are unfair and deceptive under the Federal Trade Commission Act.

The OCC stated that based on existing regulations, the final rule would apply to operating subsidiaries.

The visitorial powers rule is substantively the same as the proposed rule with certain modifications. The rule clarifies the scope of the OCC’s exclusive visitorial authority over national banks in regard to activities authorized under federal law. The rule also clarifies the exception to the OCC’s exclusive visitorial power vested in the courts of justice. In its comments, the OCC stated that the final rule is consistent with federal law and the dual banking system.

In a chart comparing the scope of national bank, thrift and credit union preemption, the OCC indicated substantially the same scope as for thrifts.

The OCC published a number of documents explaining the rules on national bank preemption and the OCC’s visitorial powers, including:

The final rule has already generated strong opposition:

Congresswoman Sue Kelly, 19th District of New York, who chairs the House Financial Services Subcommittee on Oversight and Investigations, has said that she intends to hold hearings on the OCC's new rules.

Mike Tomkies and Elizabeth Anstaett