Spitzer Taking Aim At Preemption of Bank Rules

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New York attorney general Eliot Spitzer, who has been battling federal securities regulators over jurisdictional issues in the mutual funds scandals, is at it again. Spitzer filed suit to block the Office of the Comptroller of the Currency from allowing nationally (federally) chartered banks to skirt state consumer statutes.

"This is a continuation on the part of the Bush administration to preempt state enforcement in areas that are critical to ensuring civil rights and consumer rights," said Spitzer, of the OCC's new regulation aimed at preempting the growing number of state laws on predatory lending.

The OCC and other federal regulators, including NCUA, have routinely joined the side of federally chartered institutions claiming they are not bound by state laws. NCUA, like the OCC, has issued legal opinions in recent years exempting federally chartered credit unions from predatory lending laws in North Carolina, Georgia and the District of Columbia, as well as credit card disclosure rules in California.

While Spitzer has trumped federal regulators in recent cases, particularly his successful investigations into the mutual fund industry, his chances in this case are considered negligible. That's because the courts have routinely ruled in favor of federal regulators and their preemptive powers when it comes to the jurisdiction bestowed by the National Bank Act or the Federal CU Act. That's what the federal court in California ruled last year when organizations, including NAFCU and CUNA, challenged the state's jurisdiction over federal (national) charters in its new credit card disclosure law. That case is currently being appealed.

But Spitzer and other state attorneys general claim that states have historically shared jurisdiction with federal regulators over national chartered institutions when it comes to consumer protection laws.

The federal regulators argue that the advent of national markets makes the application of varying, and sometimes contradictory, state laws and regulations difficult and burdensome for federal charters, thereby requiring a uniform national standard overseen by federal regulators and courts.

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