The turf battle between federal and state regulators over lifeline banking services is about to heat up again.
The Office of the Comptroller of the Currency is asking the public in today's Federal Register if it should reconsider a 1992 decision preempting New Jersey's "lifeline banking" law.
That controversial decision gave national banks permission to ignore a New Jersey law requiring all banks to offer low-fee checking accounts to low-income consumers.
The OCC said the New Jersey law conflicted with the federal Bank Enterprise Act, which reduces deposit insurance premiums for banks that offer low-fee basic banking services to low-income communities.
The problem: Federal law makes these accounts voluntary, while New Jersey requires them.
Acting New Jersey Banking Commissioner John M. Trajer asked the Comptroller's Office on Nov. 13 to reconsider the issue. He argued that the state and federal laws are complimentary, pointing out that both legislatures intended to make banking services available to poor people.
Julie Williams, chief counsel at the Comptroller's Office, said the dispute boils down to the ability of states to interfere with a national bank's business practices.
"This is a question of a state law telling a national bank that it has to perform a particular type of service or activity," she said.
However, the OCC is reconsidering its 1992 decision because New Jersey has requested it. The agency will consider three factors: if the New Jersey law conflicts with federal law, if federal law is so encompassing that it leaves no room for the state law, and if the state law frustrates Congress's intent.
Banking industry observers said this is part of a continuing battle between state and federal regulators for control of the banking system. Other fights include the Supreme Court battle over state attempts to regulate fees charged by out-of-state banks, and efforts by banking commissioners to make state charters more attractive to national banks.
An OCC reversal could hurt bankers, said Steven Zeisel, senior counsel to the Consumer Bankers Association. Rather than dealing with a single policy on low-income accounts, they'd have to address separate state laws.
The New Jersey lifeline law severely restricted how banks treated these accounts. For example, they cannot charge more than $3 for the account, must accept initial deposits as low as $50, must provide for at least eight free checks a month, and must allow unlimited deposits.
"The New Jersey law is good for consumers, and I hope the OCC recognizes that states have the right to promulgate certain consumer compliance rules," Mr. Trajer said in an interview Monday.
