The Office of Thrift Supervision has ruled that a California consumer protection law does not apply to federal thrifts.
The March 10 decision, which surfaced last week, is important, industry experts say, because the agency is preempting a state law that does not relate directly to banking.
"I'm a little surprised to see the agency is being as aggressive as it is in its interpretation," said David W. Roderer, who is of counsel in the Washington office of the Goodwin, Procter & Hoar law firm.
Mr. Roderer said the OTS has routinely used its authority to preempt state banking laws that conflict with the federal thrift statute. But it rarely exempts federal thrifts from broad consumer protection laws that apply to beyond the banking industry, he said.
It was unclear whether California would contest the ruling. A spokeswoman for the state attorney general said she could not comment because she was unfamilar with the case.
Ronald Glancz, a partner in the Washington office of the Venable law firm, said the thrift agency should expect the decision to create a small uproar. Preemptions of state law are never popular, he observed.
Ellen C. Lamb, a spokeswoman for the Conference of State Bank Supervisors, questioned whether the agency's reach had gone beyond its grasp.
"We have been disturbed by cases where the OTS has preempted state consumer laws when it's really hard to see where the state laws interfere with home lending," she said.
Carolyn Buck, OTS chief counsel, acknowledged that it was unusual to preempt a consumer rights law that does not pertain to banking.
"This is not the type of statute that we would basically preempt," she said of the ruling that was made in response to an unidentified California thrift holding company's request.
But Ms. Buck defended the ruling, saying the plaintiffs involved were trying to use the statute in a way that interfered with the thrift's operations.
The ruling is consistent with previous agency opinions that thrifts have the right to operate with uniform standards across the country, Ms. Buck said.
Further, she said, the ruling is narrow because it only addresses three areas of the thrift's business and does not preempt the entire statute. The plaintiffs may still seek damages under other laws, she said.
The California thrift holding company had been sued numerous times over allegations it violated the consumer protection law.
In one case in which the local district attorney raised allegations of misleading advertising, the company agreed to pay a fine without admitting any wrongdoing.
The company is still defending a class action over its policy of forced placement of hazard insurance, in which the bank takes out insurance policies on homes when the borrower's own policy has lapsed. The suit claims the fees for such forced insurance were excessive.