Federal Regulatory Preemption Stopped In The House, Bank Lobbyists Turn To The Senate

Rep. Melissa Bean (D-IL)

Rep. Melissa Bean (D-IL)

There was some good news on the regulatory reform front today, as Rep. Melissa Bean (D-IL) has agreed to drop an amendment to the House Financial Services Committee’s reform legislation that would have prevented state governments from enforcing regulations that go further than those set by the federal government:

In a piece of political theater, Bean now plans to introduce the amendment and then to withdraw it, according to people familiar with the matter. She then plans to engage in a scripted conversation with [Committee Chairman Barney] Frank, in which both are to affirm the importance of further discussions about the issue. Bean can then reintroduce the amendment once the bill comes before the full House, but lobbyists on both sides say they regard the battle as over.

But is anything really “over” when it has yet to come before the Senate? Indeed, while the bill without federal preemption for national banks is “likely to pass the House,” the Washington Post reported that “it faces an uncertain future in the Senate, where financial lobbyists regard some moderate Democrats as more sympathetic to their concerns.”

There is also a second preemption amendment that is alive and well in the Financial Services committee, which would allow federal preemption “when a state law has a ‘discriminatory effect’ on national banks.” The amendment would also “allow the Office of the Comptroller of the Currency (OCC) to determine if a state law prevents or interferes with a national bank’s business.”

This is a terrible idea, as the OCC has repeatedly issued specific exemptions for national banks. In 1999, the OCC “said national banks did not need to comply with a California law limiting the fees banks could charge for ATM withdrawals.” And then, in 2000, “it lifted a Rhode Island law limiting changes in the interest rates on credit cards.” Finally, in 2002, the OCC “overrode a Texas law that barred banks from charging check-cashing fees.” Meanwhile, the current OCC head, John Dugan, has a very dim view of states that want to rein in national banks, saying that “we have a system that works fine in terms of examination and enforcement of consumer protection.”

And while Bean has shelved her amendment for the time being, I wouldn’t be as quick as the Post to declare that the big banks are “losing power on Capitol Hill.” After all, mortgage cram-downs — which the banks bitterly opposed — passed the House, only to be ultimately defeated by a furious lobbying campaign in the Senate. Bean backing down is a good thing, but it’s by no means the end of the preemption debate.