CFA on Financial Reform:A Daily Look at Reform Proposals and Their Effects on Consumers
May 3, 2010: Preemption of State Laws Leaves Consumers Vulnerable
Dear Senator:
The Consumer Federation of America urges you to reject amendments to S. 3217, the “Restoring American Financial Stability Act “that preempt state consumer protection laws. Recent history demonstrates how preemption can hurt consumers. Numerous actions and inactions by federal bank regulators have led to or encouraged unfair practices, higher prices for consumers, and less competition. For example:
- The Office of Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), which have authority to interpret the National Bank Act and the Home Owner’s Loan Act, respectively, have used that power to wipe out state consumer protection laws with nothing to replace them at the federal level.
- The OCC engaged in an escalating pattern of preemption of state laws that were designed to protect consumers from a variety of unfair bank practices and to quell the growing predatory mortgage crisis, culminating in its 2004 rules preempting both state laws and state enforcement of laws over national banks and their subsidiaries.
- The OCC has developed regulations prohibiting states from enforcing their own fair lending statutes.
States are the first responders to consumer protection problems. State laws and state enforcement of federal law can ensure that a local problem doesn’t metastasize into a national disaster. Despite the rhetoric coming from the banks, many national industries deal with state laws every day. And state laws really aren’t that different. States typically work to harmonize their own laws with related state and federal laws. In fact, states often pass uniform and model laws and work through multistate enforcement task forces to harmonize their state laws. History has shown that only a small number of states usually pass laws that move beyond federal protections.
Even a strong federal agency will not have sufficient resources to address violations of consumer protection laws. While preemption didn’t cause our recent economic crisis, it certainly helped to add fuel to the flames of the mortgage meltdown, as states were preempted from acting on behalf of their own citizens. The Consumer Financial Protection Bureau must be a floor of consumer protection, not a ceiling. We urge you to oppose amendments to preempt states from protecting their citizens.
Sincerely,
Travis Plunkett Susan Weinstock
Legislative Director Director, Financial Reform Campaign