WASHINGTON — The Senate approved an amendment Tuesday to the regulatory reform bill that would give federal regulators more leeway to preempt state laws but still allow state attorneys general some enforcement power over national banks.

The measure, approved 80 to 18, was softer on the banking industry than a previous version by Senate Banking Committee Chairman Chris Dodd, but would still be stronger than current law.

"The amendment preserves the ability of state attorneys general to be a backstop for the Consumer Financial Protection Bureau, and while the new bureau will be the main enforcer of its new rules, it preserves the role for the state AGs to ensure that consumers are never again put at risk because federal regulators are asleep at the switch," said Sen. Tom Carper, D-Del., who authored the amendment.

Dodd said the amendment was "really striking a balance."

"The Carper amendment preserves the state attorneys general's role protecting their citizens against abusive practices," he said.

Under Dodd's bill, the Office of the Comptroller of the Currency would be allowed to follow the so-called Barnett standard to preempt state laws on a case-by-case basis.

But banking industry representatives objected to the provision because it would also require the agency to take additional steps, including proving that the issue a state law is addressing is already being handled by a substantial federal standard.

The Carper amendment would remove such language from the reform bill, allowing the OCC more flexibility to preempt state laws.

However, Carper, under pressure from the White House and state advocates, was forced to drop his original plan to curb the state AGs' ability to enforce federal and state laws against national banks.

His amendment would allow state AGs to enforce new rules from a proposed consumer protection bureau against all banks, but it would prevent them from bringing federal class actions against national banks or charging them over activities conducted in other states.

State regulatory representatives argued it was a good compromise that allowed for national standards but preserved the rights of states to act. "Politics is about compromise, and while I think too much was compromised, the spirit of the amendment recognizes the important role that the states play while trying to address industry concerns about uniformity," said John Ryan, executive vice president at the Conference of State Bank Supervisors. "While it's a compromise, it feels like a fair compromise."

The Obama administration also said it was satisfied with the amendment. "The Carper amendment represents a significant improvement over the status quo and would help to ensure that there are enough cops on the beat to enforce important new federal protections," a Treasury spokesman said.

Still, it did not sit well with national bank and preemption advocates, who warned that state AGs would have much more power to pursue national banks than under current law.

"There is no way that you can consider national banks winners with this legislation," said Robert Cook, a partner at Hudson Cook LLP.

Ken Clayton, chief legislative counsel for the American Bankers Association, said the amendment was better than the original Dodd bill but still problematic.

"We continue to be concerned about the broad authority of state AGs to politicize national banking laws through litigation," Clayton said. "At the same time, we do believe the provisions dealing with the way the Barnett standard works, that's a significant improvement that permits national banks to deliver services in a uniform way to consumers across the country."

Although state AGs would be restricted to enforcing rules from the new consumer bureau, observers said that could prove significant over time. "Eventually it will give the attorneys general the ability to enforce almost any consumer protection rule against national banks," Cook said. "It's going to have considerably significant impact later. … Will the national banking system survive as a result of this amendment? Yes. Will it be the most efficient banking system? The answer is no."

Others said it could have been worse for national banks.

"The ultimate effect of the amendment to permit state enforcement of the Bureau's regulations remains to be seen, but on balance it's still a better position than what they had before under the original Dodd bill," said Matt Yoon, a member of the capital markets practice at Sonnenschein Nath & Rosenthal LLP.

Some Republicans continued Tuesday to try to go further. Sen. Bob Corker of Tennessee said he preferred the original Carper amendment and offered it to a vote, but it was defeated 55 to 43.

"This is going to create so much uncertainty out there, and then to have an organization like this unfettered dealing with these types of issues and then for the first time in years allowing the state AGs to take actions against some of these smaller institutions," Corker said. "This is one of the most dangerous and problematic attributes of this bill."

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