ICBA Weighs in on Preemption Proposal
Commenting on the OCC's proposal to adopt a regulation on preemption of state laws, the ICBA recommended the agency continue to evaluate possible preemption on a case-by-case basis instead, since these are sensitive issues and each statute is unique and should be considered carefully. Adopting a regulation would not avoid legal challenges to the OCC's authority to preempt but could have negative implications for the dual banking system, the ICBA said.
The OCC proposed adopting a regulation that would preempt state laws as applied to national banks in a variety of areas such as licensing requirements, restrictions on collateral or loan terms, and mandatory disclosures, although it would not apply to laws that create the environment in which a national bank operates, such as criminal statutes or laws on contract.
Instead of a broad preemption regulation, the ICBA urged the OCC to adopt the proposal as a statement of policy or guidelines for how it will review state laws regarding federal preemption. ICBA also told the OCC it would be inappropriate for the agency to declare that it "occupies the field" in real estate lending since real estate transactions are essentially creatures of state law.
The ICBA urged the agency not to prohibit a bank from making a loan based predominantly on the value of the collateral without regard to a borrower's repayment ability. While agreeing it is appropriate to discourage such practice as a general rule, the ICBA cited a number of examples, such as borrowers with erratic cash flows or reverse mortgage lending, where the value of the collateral may be important to the ability of a bank to make the loan. The ICBA also told the OCC that codifying a requirement regarding a borrower's "repayment ability" would likely generate new paperwork demands from examiners to demonstrate compliance, even though such a requirement is implicitly understood in standard underwriting practices.
The ICBA's comments are posted HERE.