Banking Law

Chipping Away At Preemption

A recent action that received little coverage (other than by BankThink) was the request by Consumers Union that The Treasury Department order the OCC to rescind its preemption regulation. Consumers Union is trying to win the case of Cuomo v. The Clearing House Association, LLC through the back door. It appears to believe that its chances of winning before the Supreme Court of the United States this time around are as bleak as they were in the case of Watters v. Wachovia andis trying to "preempt preemption" through the Obama administration.

Former OTS attorney and current Paul, Hastings partner V. Gerard Comizio correctly observes that the Treasury's influence in this sphere is hamstrung by changes made to banking laws during the 1990s. The OCC doesn't answer to Treasury in the matter of rule-making, so Geithner can tell the OCC to rescind, and the OCC can tell Geithner to stick it in his ear. Not that the OCC would do that, just that it could.

I doubt that Tim Geithner, with all he's got on his plate these days, will take up a cause that weakens the authority of the OCC, diminishes federal power over banking, and could add to the regulatory burden of national banks.  With every Tom, Dick, and Cuomo seeking to promote his or her career under the guise of being the next Eliot Mess, the last thing Geithner likely desires is to stick his nose into the middle of this kerfuffle.

Emily Flitter of BankThink does note two interesting points, however.

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?

[...]

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.

My bet is that all parties will await the decision of the Supreme Court's latest shot at the OCC preemption issue. If the SCOTUS comes down once again on the side of national banks, as I expect, then I also expect Barney to get busy. It's a crap shoot whether such legislation would pass and be signed by the President. If the economic stimulus doesn't stimulate, and the next iteration of "Son of TARP" doesn't juice the financial system, then our feckless leaders might be focused on more critical issues. On the other hand, as I've said previously, this year appears to be the best ever to see such legislation enacted.

Full post as published by Bank Lawyers Blog on February 15, 2009 (boomark / email).