Democrats back power to block state consumer laws

Reuters News
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Posted: Jul 08, 2011 12:38 PM
Democrats back power to block state consumer laws

By Dave Clarke

WASHINGTON (Reuters) - Two Democratic senators are defending a top U.S. regulator's power to shield the nation's largest banks from certain state consumer financial laws.

The issue of "preemption" has flared in recent weeks as the Office of the Comptroller of the Currency and the Treasury Department have sparred over how to interpret a standard laid out in last year's Dodd-Frank financial oversight law.

In late June, Treasury criticized the OCC's proposed rule to carry out the legislative standard, arguing the proposal still interprets the OCC's ability to block state laws too broadly.

On Friday, Senators Tom Carper and Mark Warner said it is the Treasury whose interpretation of the law is wrong and that the OCC should still have the power to shield national banks from a paralyzing patchwork of state laws that could restrict financial products.

"While we understand that the position of the Administration was to eliminate federal preemption for national banks, the fact is that Congress did not accept that position," the senators wrote in their letter to Treasury Secretary Timothy Geithner.

States and consumer groups have been feuding with the OCC for years, contending the agency has not been aggressive enough in policing bank lending abuses and have been too friendly to the banks.

Dodd-Frank was supposed to lay out more explicitly when the OCC can block state laws that would impact the products of national banks such as Bank of America, JPMorgan Chase and Wells Fargo.

Carper and Warner, who are part of the centrist wing of the Democratic party, authored the preemption language contained in the law. It represents a more moderate change than the Obama administration and several congressional Democrats had wanted.

(Reporting by Dave Clarke; Editing by Tim Dobbyn)