Federal Government defends lax rules for national banks

You may not know it, but if you borrow from a national bank — usually one of the big banks with offices in more than one state — they are not subject to your state’s consumer laws. They are regulated by the Office of the Comptroller of the Currency (OCC) and the regulations tend to be pretty loose.

For example, in Massachusetts, state law prevents banks from charging prepayment penalties on your mortgage after one year if you sell your house and after three years if you are just refinancing. But the OCC’s rules are much looser and I have met people who did not find out until just before closing that they owed tens of thousands of dollars in prepayment penalties.

The head of the OCC recently defended this system in a talk to the Consumer Federation of America. His argument, it seems to me, boils down to “What’s good for the big banks is good for the USA!”

My advice: If you live in a state with good regulations, use a local bank for everything you can.

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