Acting Comptroller of the Currency Rodney Hood rejected calls from state banking regulators to rescind the OCC’s preemption rule Monday, standing behind preemption as a “cornerstone of the dual banking system.”
“The OCC’s regulations are consistent with federal law, Supreme Court precedent, and the [executive orders],” Hood wrote in a letter to Conference of State Bank Supervisors CEO Brandon Milhorn. “The OCC will not rescind its regulations and will continue to vigorously support and defend federal preemption.”
Milhorn wrote Hood in May to argue that the Office of the Comptroller of the Currency’s preemption rule, in which federal law supersedes state law in terms of regulations affecting national banks, violated two of President Donald Trump’s executive orders, Supreme Court precedent and the “best reading” of the Dodd-Frank Act.
One of the executive orders, EO 14267, requires agency heads to eliminate regulations that are anti-competitive.
“[B]y insulating national banks from broad categories of state consumer financial laws … the OCC has sought to thwart competition by attracting additional national bank charters at the expense of state bank charters,” Milhorn wrote. “This is not idle speculation, but a fact acknowledged by former Comptroller John Hawke during Congressional testimony. The OCC provides national banks with a competitive advantage via broad preemption not authorized by the National Bank Act and not available to similarly situated state-chartered banks.”
“Thus, the OCC’s preemption regulations also violate the directive in EO 14267 that ‘[f]ederal regulations should not predetermine economic winners and losers,’” Milhorn wrote.
The other, EO 14219, directs federal agency heads to rescind unlawful regulations – which, Milhorn argued, would apply to the preemption rule, as it ignores “the plain language of, and Congressional intent embodied in … the National Bank Act.”
Hood rejected Milhorn’s assertions in his Monday letter.
“Contrary to your assertions, the OCC’s preemption regulations are wholly consistent with Dodd-Frank and Supreme Court precedent and thus meet the requirements of EO 14219. For your awareness, the OCC reviewed its preemption regulations following Dodd-Frank’s enactment,” he wrote. “You also suggest that the OCC’s preemption regulations are anti-competitive. This [is] not the case.”
Hood wrote that federal preemption has been a “powerful enabler of local and national prosperity and growth,” and that it’s “helped to foster the development of national products and services and multi-state markets, which have benefitted individuals and businesses in every state and powered this Nation’s economy.”
Hood’s response to Milhorn aligns with a letter penned by American Bankers Association Executive Vice President Hugh Carney to Hood late last month, urging him not to rescind the preemption rule.
“CSBS essentially contends that state legislatures and state banking regulators should be able to overrule – or, at the very least, seriously undermine – established national bank policy while federal agencies are engaged in a government-wide regulatory rebalancing effort,” Carney wrote. “Respectfully, CSBS's assertions appear to rest on misinterpretations of legislative history, regulatory text, and case law and overlook the importance and structure of our nation's dual banking system.”
Last year, then Acting Comptroller Michael Hsu said the OCC planned to “fortify and vigorously defend core preemption” following a recent Supreme Court decision that tossed out an appeals court ruling that permitted big banks not to pay interest on escrowed funds, despite laws requiring such payments in 14 states.
Hsu said the OCC would, however, assess preemption rules “to determine whether updates are needed in light of the recent [Cantero v. Bank of America] decision.”
