State credit union supervisors gathered here last week for the annual NASCUS convention are watching carefully as Congress debates the reauthorization of the law that provides federal preemptions of state credit laws.
A clear consensus was apparent among those interviewed last week in favor of uniform preemptions under the Fair Credit Reporting Act of those provisions that ensure equal access and protections for all creditors. But most are weary that Congress will encroach on other areas traditionally seen as the prerogative of state lawmakers and regulators.
"I think it's definately a state's rights issue," said Roger Little, the deputy commissioner of the Michigan CU Division and the incoming chairman of NASCUS-the National Association of State CU Supervisors. "There may be a time when it is appropriate for the federal government to come in and preempt state laws, but in most cases those are decisions that the state regulator ought to make."
Several state regulators bore the scars of recent battles with federal regulators or courts that preempted state laws or regulations. James Forney, superintendent of the Iowa CU Division, for example, had mixed success in a case a few years back when federal agencies, including NCUA, found some of the provisions of an Iowa law requiring credit card issuers to register and be audited by the state, to be preempted by federal statute.
"I think federal preemptions, sometimes, depending on what the law is, can create undue hardships on state-chartered institutions if it means federal charters, for instance do not have to comply with the same law," said Forney, who presides over a system in which all but one credit union is state chartered. "In most cases, the states are closer to the citizenry and that's where the decisions ought to be made; but when there are national issues at stake then the only way to deal with them may be at the national level."
Where Conflicts Have Arisen
The concerns come not only as debate heats up over the fair credit law, but as federal regulators weigh in on an increasing number of preemption conflicts:
* In California, NCUA ruled that the Federal CU Act and the Comptroller of the Currency ruled the National Bank Act preempt provisions of a new credit card disclosure law. A contest between federal credit union and bank groups is now in the courts.
* In Texas, the OCC ruled that federal statute preempts provisions of the state's recently passed law on check cashing fees.
* In North Carolina, Georgia and the District of Columbia, NCUA and OCC ruled federal charters are not beholden to new predatory lending statutes passed by the states.
* In Connecticut, First Union claims its state-chartered Wachovia Bank is not required to abide by the state's new predatory loan law because of the national bank charter of the bank's parent.
"I think the federal preemption ought to be supported by statute and not by a lawyer who wishes it to be," said Richard Houseworth, Arizona Superintendent of Banks, of the legal opinion letters provided by NCUA, OCC and other federal regulators. "FCRA is being debated by Congress, where it ought to be debated."
"Preemption is an underlying issue in so many cases," said Gavin Gee, director of the Idaho Department of Finance and past chairman of the Conference of State Banking Supervisors, which is supporting the Connecticut Attorney General's office in a preemption suit in the Wachovia case.
"CSBS supports federal preemptions in fair credit reporting and in other cases where it insures the availabiity of credit; there are some very limited areas where we say preemption makes sense. But if the states lose this preemption battle (Wachovia) then virtually any company can come in, affiliate with a national company and get preemption from the local statutes," said Gee, also past chairman of NASCUS, of the ramifications of the Connecticut case.