The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

On September 24, 2012, the government overseer of large banks, the Office of the Comptroller of the Currency (OCC) exercised its enforcement authority against a bank and ruled that stricter state consumer protection regulations were not preempted by more lenient federal banking regulations. The OCC found that the Urban Trust Bank (UTB) of Florida violated state usury caps in Ohio and Arizona and that these usury caps were not preempted by the National Banking Act.

In recent years consumer protection advocates have criticized the OCC for its lax enforcement of banks; many blame the failure of financial regulatory agencies such as the OCC to adequately enforce consumer protection laws for contributing to the recent financial crisis. Between 1987 and 2009, the OCC brought just four formal enforcement actions under the Equal Credit Opportunity Act, and between 1997 to 2007 it took only nine enforcement actions banks under the Truth in Lending Act. And most shockingly of all, between 2000 and 2008, at a time when subprime mortgages and other mortgage abuses were proliferating, the OCC took just two public enforcement actions against banks for unfair and deceptive mortgage practices.  

Thus the OCC’s recent enforcement action against UTB is important not only for the consumers that were directly affected by the bank's loan product, but also for consumers in general. In part, it may signify a new willingness by the OCC to take its consumer protection responsibilities seriously.    

Among other reforms, the Dodd-Frank Wall Street Reform and Consumer Protection Act made it more difficult for the OCC to declare that stricter state consumer protection regulations are preempted by more lenient federal law. Under Dodd-Frank, the OCC may only preempt laws if (1) they discriminate against national banks; (2) a given law “prevents or significantly interferes with the exercise by [a] national bank of its powers,” as stated in the Barnett Bank case; or (3) the state law is preempted by another federal law. Yet, in its final rule implementing this provision of Dodd-Frank, it was not clear that the OCC was actually going to adopt this statutory preemption test. According to critics, the OCC’s final rule seemed to indicate that the OCC intended to ignore the Dodd-Frank preemption test and simply continue using its old test as embodied in its previous preemption regulations issued in 2004. Specifically, under these regulations, the OCC could preempt a state law if it “obstructs, impairs, or conditions” bank operations. Since the language in the new final regulations mirrored a lot of that in the old regulations, many critics believed that the OCC would continue to side with banks by continuing to broadly apply its preemption authority. The ruling against UTB, however, shows that the OCC might be taking steps to allow stricter state regulations to be enforced.

On September 24, 2012, the OCC found that Florida-based UTB was engaging in “violations of law and regulations and unsafe and unsound banking practice.” The bank was issuing prepaid cards to the payday lender CheckSmart in order to evade state payday and usury laws. The National Consumer Law Center (NCLC) and other supporting advocacy organizations detailed the fraudulent activity in a Letter to OCC on May 3, 2012. This letter urged the OCC to take action in protecting consumers against predatory lending practices. According to this letter, CheckSmart was using Insight prepaid cards to make loans in Arizona and Ohio that exceeded the usury rates in those states of 36% and 28% respectively. The annual interest rate for the CheckSmart credit product was 401%, and the overdraft loan had a 390% annual interest. On August 23, Thomas Curry, Comptroller of the OCC, responded directly to NCLC letter, stating that the OCC “share[s] your concerns” and that the OCC planned to take action. The OCC subsequently released a settlement agreement by and between UTB and the Comptroller of the Currency wherein UTB agreed to correct legal violations and to submit to the OCC an analysis of its prepaid card program that “fully assesses the risks and benefits of this line of business.”

By determining that Arizona’s and Ohio’s state interest rates caps were not preempted, the OCC ruled on the side of advocacy groups and strict consumer protections against predatory lending. While we will need to continue monitoring the OCC’s enforcement actions in order to know if it will continue to follow Dodd-Frank’s preemption provisions, its enforcement action against UTB is a step in the right direction and can be seen as an early sign that the OCC will no longer continue its trend of ruling that every state consumer protection law is preempted by federal law. 

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The most recent season of NBC’s Biggest Loser just ended. Rather than waiting for next season, viewing audiences can watch a rip-off of the show right now. The new show, The Biggest Loser: American Consumers, features real Americans who have lost their financial security due to the current economic meltdown.

In the real Biggest Loser contestants vie to see who can lose the most weight, but in the American Consumer version the contestants have already lost their money.

The real Biggest Loser season always begins with contestants’ previous unhealthy diet and lifestyles being replaced with healthy foods and reduced portion sizes. The American Consumer version is the same. Instead of being force feed diets of huge portions of subprime mortgages, mortgage-backed securities, credit default swaps and predatory loans that were sautéed in a reduction of regulatory oversight sauce and served with a side of wilted consumer protection laws, consumers will receive solid financial products garnished with pro-consumer policies. They’ll even get dessert – a sundae bar from which the consumers can create their own sundaes of jobs, savings, investments and retirement accounts, complete with whipped cream and a cherry on top.

While real Biggest Loser contestants are forced to endure grueling, back-breaking, marathon workout sessions designed by their trainers, American consumer contestants will be the ones conducting “workout sessions.” During these workout sessions, or interrogations, the contestants will question the financial regulators, such as the Federal Reserve Board, the Office of the Comptroller of Currency, the Office of Thrift Supervision, the Federal Finance Agency, and the Securities and Exchange Commission, whose job it was to ensure consumer protections. Instead of the contestants being kicked off because they are below the yellow line in weight loss, regulators who failed to do their consumer protection duties will be eliminated each week.

Since we already know that none of the regulators actually protected consumers, and therefore will be kicked off, the last few shows will be special episodes. The most anticipated of these final episodes is the “Financial Products Safety Commission.” In this special episode the American consumers get to create a plan for a new federal agency committed to ensuring that the financial system places people before profits. Viewers call-in votes, rallies, support letters and voices will help determine the winning plan. Numerous guest stars are already scheduled to appear including: Elizabeth Warren, the chair of the TARP task force who first noted that Americans toasters have more consumer protections than their mortgages; Illinois Sen. Dick Durbin who already drafted proposed legislation that would create such a financial product safety commission; and a myriad of former bankers singing “Bye Bye American Pie.”

At the end of this star studded spectacular finale, the Biggest Loser: American Consumer’s grand prize will be awarded: financial stability for all Americans.

So check your local TV listings and don’t miss an episode of what will be the most exciting reality TV series yet.

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