A new Supreme Court case set to be heard this spring will revisit the much-pondered issue of preemption, but Consumers Union has taken the quest for states rights to enforce laws against national banks a step further. In a letter this week to Treasury Secretary Timothy Geithner, Consumers Union asks the Treasury to repeal preemption rules issued in 2004 by the Office of the Comptroller of the Currency.
Financial services campaign manager Gail Hillebrand argues in the letter that the latest high court case, Cuomo v. The Clearing House Association, LLC, could be influenced in favor of the states if the Treasury would change its position and withdraw its support of the OCC. The case looks at whether states can investigate national banks and enforce state antidiscrimination laws through their courts, without having to wait for the OCC to take action. The OCC contends that even when a state law does legitimately apply to a national bank, it is still up to the agency to carry out the law´s enforcement.
"By reversing the position of the United States before the Supreme Court and directing that the OCC rescind its pro-preemption regulations and interpretation of the National Bank Act, you can increase substantially the efforts to monitor and enforce higher standards against the banks at the heart of the current financial crisis," Ms. Hillebrand writes.
But what authority does the Treasury really have over the OCC´s rulemaking? Not much, says V. Gerard Comizio, a partner at Paul, Hastings, Janofsky & Walker LLP.
Two decades ago, Mr. Comizio explained, everything from new rules to congressional testimony by the OCC and the Office of Thrift Supervision had to be cleared through the Treasury. But Congress passed laws in the mid-`90s that separated the two agencies´ authority. Now, neither agency has to answer to the Treasury on matters of rulemaking and guidance.
"Basically the primary recourse for someone troubled by the OCC´s rules on preemption is through the courts," Mr. Comizio said. "This may be more of a macro request as to what the administration´s policies are going to be in this area on a going forward basis."
The changing of the presidential guard seems to have emboldened consumer groups. Six months ago, who among them would have even imagined appealing to a power over Comptroller John Dugan´s head? The question now is how Mr. Geithner will handle these new expectations. Between Tarp II and his tax woes, it´s hard to conceive of how he´d have the time.
Even if he doesn´t, however, the OCC might still find its authority curtailed. Congress could take up the issue again. During a press conference Tuesday in which he outlined his priorities for the year, House Financial Services Committee Chairman Barney Frank said Mr. Geithner should reverse the Treasury´s support for the OCC´s assertion of authority. Otherwise, Rep. Frank said, Congress would begin working on a new law. "States do a better job" making and enforcing consumer protection laws, he added.