Bean Preemption Amendment Letter of Opposition

December 9, 2009

U.S. House of Representatives
Washington, DC 20515

Re: Bean #141 (Preemption), H.R. 4173 — Oppose

Dear Member of Congress:

Americans for Financial Reform, a coalition of over 200 national, state and local consumer, labor, business, retiree, investor, community and civil rights organizations, and the undersigned organizations are writing in strong opposition to Rep. Bean’s Amendment #141 to H.R. 4173, the “Wall Street Reform and Consumer Protection Act of 2009.”  We urge you to oppose this amendment should it reach the Floor.

The Bean amendment would add sweeping preemption language to the bill and would rollback even the existing role of states in protecting families from the worst financial abuses.  The amendment would not just preserve the status quo level of preemption; it would strip the states of their existing ability to protect their residents.  At a time when abject abuses in the financial system have led to the worst financial crisis since the Great Depression, the Bean amendment would eliminate the State law protections that ordinary Americans currently enjoy and would prevent states from responding to new problems in financial products.

A new report released by the Center for Community Capital at the University of North Carolina found that States with stronger anti-predatory lending laws were spared some of the worst impacts of the foreclosure crisis.  Ensuring that the states can take an active role in protecting their citizens is particularly important when the federal government fails to act properly; it is, however, equally important to allow states to address problems that arise locally and require local action long before a national solution is necessary or available.  Preventing States from protecting their economies and their citizens would be a major step in the wrong direction.

Our specific concerns about the Bean amendment include the following:

(1)    The Bean amendment would give congressional endorsement to broad new power to the federal bank regulators exempt national banks from State laws. The Supreme Court held, in the 1996 Barnett case, that only laws that “prevent or significantly interfere with” a national bank’s banking activities may be preempted.  Congress endorsed this standard in 1999.  To date, federal regulations have distorted this standard, and the Bean amendment would break it altogether, allowing federal bank regulators to preempt state laws that merely “hamper” the business of banking.  The amendment would also prevent state laws from applying to any current bank practices, even if that weak preemption standard is not met.

(2)    The Bean amendment would expand preemption under a host of transferred statutes, contrary to the preemption standards in those statutes, including ones covering areas not currently subject to any preemption.  With the stroke of a pen, the Bean amendment would expand preemption into new areas and undo long-standing Congressional policy under, e.g., the Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Real Estate Settlement Procedures Act, and the Graham Leach Bliley Act, which already define when state laws can add to these federal provisions.  The Bean amendment would allow federal bank regulators to determine that all CFPA regulations, even under transferred statutes, will be preemptive for national banks.

(3)    The Bean amendment would eliminate the bill’s provision governing judicial deference to federal bank regulators’ preemption activities. The amendment’s structure, by authorizing federal bank regulators to make preemption decisions under a weak standard, would prevent courts from acting as a check on unnecessary preemption decisions.

The amendment would put the most minor impact on banks ahead of the costs of financial abuses on consumers.  Inadequate consumer protection has already cost ordinary families and small businesses trillions of dollars in lost wealth, including:

  • $1.9 trillion lost home equity due to nearby foreclosures (2009-2012)
  • 91.5 million homes with foreclosure-related decline
  • Average loss of wealth per home affected: $20,288
  • $308.7 billion decline in housing contribution to US economy (2005-2008)
  • $24 billion in overdraft fees
  • $104.6 billion in credit card fees and interest (2008)

Excessive preemption has been a significant cause of the consumer protection failures in recent years:

  • Mortgage lending: In the peak year of toxic lending, 2006, 32% of subprime loans, 40% of alt A loans, and 50% of toxic prime option adjustable rate mortgage and payment option loans were made by banks or bank subsidiaries that were immune from state laws.[1]
  • Overdraft fees. Overdraft fee abuses began immediately after the federal bank regulators preempted state laws regulating bank fees.  Federal bank regulators permitted banks to adopt programs consciously and deliberately designed to induce consumers into incurring more bounce check fees.  Early on, states tried to stop abuses, such as by prohibiting bank programs that manipulated check order to increase the number of bounced checks, but preemption quashed these efforts.  Overdraft fees grew into a $27 billion tax on the very consumers who need those funds the most.
  • Credit cards. The abuses that eventually led to a federal crackdown – bait and switch rate increases, abusive fees, payment manipulations – were allowed to take off and grow due to preemption. Even general, common-sense state laws with little impact on good business practices, like California’s general law that extends contract obligations by one day if the due date falls on a weekend or holiday, were preempted.[2]

As evidenced by the examples above, today’s level of preemption has led to much consumer harm.  Congress should look to increase the role of the states, given these abuses, yet the Bean amendment would take us in the exact opposite direction.

We urge you to oppose this amendment.  While we support the original Administration preemption provisions, the Watt-Frank amendment strikes an appropriate compromise, allowing preemption of state laws but only when truly necessary to avoid interfering with the business of banking.

Thank you for your time and consideration.  If you have any questions, please do not hesitate to contact Ellen Harnick at the Center for Responsible Lending (919-313-8553), Lauren Saunders at the National Consumer Law Center (202-452-6252 x 105), or Gail Hillebrand at Consumers Union (415-431-6747 x 136).

Yours very truly,

Americans for Financial Reform

Click here to download a copy of this letter (doc).

[1] See National Consumer Law Center, “Restore the States’ Traditional Role as ‘First Responder’” at 11-13 (Sept. 2009), available at

[2] Miller v. Bank of Amer., 88 Cal. Rptr. 3d 723 (Cal. Ct. App. 2009).