WASHINGTON The Office of the Comptroller of the Currency issued an opinion Thursday that federal law preempts an Ohio statue that forbids national banks from selling leased vehicles directly to the public.
National City Bank, with headquarters in Cleveland, had asked the OCC last September to weigh in on its behalf and its sister bank in Indiana.
The registrar of the Ohio Bureau of Motor Vehicles had interpreted state law so as to prohibit banks from selling vehicles coming off of leases, or repossessed leased vehicles, directly to the public. The state official said banks could only sell the vehicles at dealer auctions.
The banks argued that the National Bank Act grants them the authority to dispose of vehicles in the most economically beneficial manner.
In a letter to the OCC, National City reported that, on average, it could earn $1,500 more per vehicle if permitted to sell at auto auctions open to the general public, not just dealers.
The OCC considered the matter as a safety and soundness issue. If banks are allowed into the leasing business, they should be able to do so in the most profitable manner, the opinion reasonedsaid.
The OCC further agrees that the Ohio law, as interpreted by OBMV, would be preempted, because it would frustrate the ability of national banks to operate their leasing businesses in an economically efficient manner consistent with safe and sound banking principles, the opinion states.
Banks typically use wholesale auctions to sell their off-lease and repossessed vehicles, Consumer Banking Association spokesman Fritz Elmendorf said. That option was not always yielding the best return, however, and some banks opened used-car lots in the hope of fetching better prices, he said.
But the point could become moot, as some banks have already decided to get out of the business.
Bank of America Corp., for example, shut all of its four Price Auto Outlet centers, closed its Greensboro, N.C., auto auction operation, and discontinued its Internet dealership earlier this year.
Several financial institutions, including National City, have cut back or quit the leasing business entirely because of mounting losses from lower-than-expected residuals, the sales price commanded by vehicles coming off leases. First Union Corp. and Wachovia Corp. exited the business in 1999, and the auto finance unit of GE Capital stopped taking new leases applications.
National City was just addressing an inconsistency, spokesman William Eiler said. We never intended to get into the used-car business.
Banks in Ohio could sell to the public vehicles that had been repossessed because borrowers failed to pay their car loan, but not repossessed leased vehicles, Mr. Eiler explained. The bank simply wanted the option to sell all of its vehicles the same way.
National City will sell its remaining lease vehicles in whichever manner it sees fit, and be done with the business, he said.
However, the opinion may prompt the Ohio Department of Commerces division of financial institutions to act, however.
We will look at this, and if we determine it would give national banks an advantage of state-chartered banks, then we would look into trying to change the state law, spokesman Bill Teets said.
The Ohio motor vehicle bureau is also reviewing the decision, a spokeswoman said.