The Office of the Comptroller of the Currency has decided to broaden the definition of "interest" to include late charges, annual fees, and over-limit charges.
The change, which takes effect April 1, will allow national banks to levy these fees across state lines just as interest rates on credit cards are.
Under the rule, published in today's Federal Register, national banks must only comply with the consumer protection laws of the state in which they are based.
Consumer groups said the agency's decision leaves states powerless to stop distant national banks from charging excessive fees.
"I'm very disappointed," said Michelle Meier, government affairs counsel for Consumer Union. "Sweeping these fees into the definition of interest has the effect of negating some state consumer protection laws."
The new definition of interest is contained in the agency's "Part 7" regulation, which is where the OCC's interpretive rulings are explained. The overhaul of Part 7 is part of the OCC's ongoing effort to streamline and update its rulebook.
"Part 7 is very significant to a number of areas of national bank activities," said OCC chief counsel Julie L. Williams. "I consider Part 7 one of the biggies, because of its scope and the fact that we have tried to be progressive."
As part of the Comptroller's Office proposed revisions to Part 7, published last March, the agency asked whether it should delineate which state laws apply to national banks and which don't. In today's rule, the agency sidestepped that controversial question.
The Comptroller's Office is now negotiating with state insurance commissioners on how state laws apply to national bank insurance sales, Ms. Williams said.
"We didn't want to interfere at all with our discussions with the commissioners," Ms. Williams said. The meetings are part of an effort by the agency to develop guidelines for insurance sales by national banks.
Ellen Lamb, vice president of the Conference of State Bank Supervisors, applauded the agency's decision to hold off.
"It is such an important issue that it really deserves to be considered on its own, and not as part of this enormous rule," Ms. Lamb said. Securities sales practices and state advertising restrictions are two areas besides insurance that also must be considered by the OCC, she declared.
According to Ms. Williams, one of the most significant additions to Part 7 is a paragraph stating that all products and services national banks can now provide may be delivered electronically.
"There has to be a recognition of the role of technology," Ms. Williams said. "This is a very significant reflection of what is important to banking."
The revised Part 7 also provides a number of options for national banks to set up corporate codes. The OCC said a national bank may adopt either the corporate code of the bank's home state, that of the holding company's home state, the Delaware corporate statute, or the Model Business Corporation Act, a model created by the American Bar Association.
"This may not be a sexy or glamorous change, but it is extremely important in terms of the day-to-day operation of national banks," said James McLaughlin, director of agency relations for the American Bankers Association.
The Supreme Court has agreed to hear a case closely related to the OCC's ruling on how to define interest.
The case, Smiley v. Citibank, questions whether states can regulate fees charged by out-of-state credit card banks. The California Supreme court in September ruled in favor of Citibank and found that the National Bank Act bars states from regulating fees charged by out-of-state banks. However, the New Jersey Supreme Court rejected this argument.
