The OCC says that federally regulated banks aren't generally beholden to state laws. Not so fast, say Senate democrats
Democratic lawmakers led by Sherrod Brown (D-Ohio) and Amy Klobuchar (D-Minn.) are asking a federal agency to confirm that state-issued mortgage relief regulations are enforceable.
In a letter to Acting Comptroller of the Currency Brian P. Brooks, seven Democratic senators – led by Brown and Klobuchar and including Elizabeth Warren (D-Mass) – asked for “clarification regarding the critical role played by state and local officials” in working with banks to provide assistance to mortgage holders during the COVID-19 pandemic.
“A wide range of state and local agreements, negotiated by Governors and Attorneys General across the nation, build on the critical forbearance and foreclosure protections that Congress included in the CARES Act,” the senators wrote. “These state and local agreements often extend foreclosure protections to all homeowners – including those who hold mortgages that are not backed, insured or guaranteed by federal agencies and thus fall outside the scope of the foreclosure moratorium [included] in the CARES Act.”
The OCC recently released a bulletin that stated that banks are “governed primarily by uniform federal standards and generally are not subject to state law limitations.” The senators feared that many financial institutions would interpret that to mean they were not beholden to state mortgage-relief regulations that went beyond the CARES Act.
“While the OCC is correct in asserting that banks are primarily regulated at the federal level and that federal law will preempt state law under certain circumstances, we are concerned that the Bulletin mischaracterizes the extent to which federal law preempts state consumer financial protection laws and may have a chilling effect on banks’ willingness to engage with state and local consumer protection agencies and officials,” the senators wrote.
According to the senators’ letter, under the Dodd-Frank Act, a state consumer financial law can be preempted by federal law only if it “prevents or significantly interferes with the exercise of banking powers authorized under federal law.” The act also requires the OCC to make that determination on a case-by-case basis.
The senators maintained that state mortgage-relief measures that go beyond the CARES Act “do not in any way prevent or interfere with the exercise of banking powers authorized under federal law.” They also criticized Brooks for the bulletin, which they said “issues a categorical, rather than a case-by-case, statement of preemption, in direct contradiction to the procedures the statute describes.”
“The practical effect of this Bulletin may simply be to undercut the efforts of state and local agencies who are working to protect homeowners during this time of crisis,” the senators wrote.
The senators demanded that Brooks “confirm that the hundreds of agreements already reached by banks across the nation with state and local agencies regarding the treatment of mortgage holders are legal, enforceable, and fully within the powers of state and local regulators.” They also asked Brooks to enumerate the steps the OCC is taking to protect mortgage holders from an “explosion” of foreclosures in coming months.