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Federal Preemption Requires a Balanced Approach, ICBA Testifies

Washington, D.C. (Jan. 28, 2004) - The Independent Community Bankers of America told a House Financial Services Subcommittee today that federal preemption of state banking laws should be done carefully on a case-by-case basis, rather than in a broad general preemption regulation.

"Preemption is a complex subject requiring a balancing of interests," said Karen Thomas, ICBA's director of regulatory affairs and senior regulatory counsel, who spoke on behalf of the ICBA. "ICBA is concerned that a broad preemption may have unintended and unforeseen consequences and would prefer an analysis of the unique elements of a particular state law before a decision to preempt is made."

"Each case should be evaluated on its own particular merits," Thomas added.

The House Financial Services Subcommittee on Oversight and Investigations asked ICBA to present its views during a hearing examining the Office of the Comptroller of the Currency's regulation exempting national banks from complying with a broad number of state lending and deposit-taking laws.

Thomas testified that ICBA has strongly supported federal preemption of state laws in a number of individual cases. She said community bankers are becoming increasingly concerned about the growing trend among state legislatures to pass aggressive consumer protection measures that, though well-intended, hurt consumers while increasing banks' regulatory burdens. She cited several examples when ICBA supported the OCC in preempting state laws, including a Georgia anti-predatory lending statute, laws banning ATM fees, and insurance sales laws that restrict how banks sell insurance.

"OCC's statement that its preemption rule will assist national banks and their customers — because overlaying state and local requirements on top of federal standards imposes excessively costly, and unnecessary, regulatory burden — resonates well with community bankers who face an ever-growing mountain of regulation," Thomas testified.

Thomas also said ICBA is concerned that the scope of the OCC rule may not maintain the "creative balance that characterizes our unique dual banking system." But, she said, OCC preemption of state laws is only one side of the coin. The other is state action that impinges on the powers of national banks or undermines appropriate federal supervision and regulation. For example, industrial loan companies, which are chartered in a few states, have the potential to undermine supervision and regulation at the holding company level while breaching further the separation of banking and commerce, as Federal Reserve Chairman Greenspan has warned.