States and Feds battle over bank regulation.

The Office of the Controller of the Currency (OCC), part of the Treasury Department, recruits banks to become members — national banks — partly by promising easier regulation. For examp,e the OCC allows much more retsrictive prepayment penalties on mortgage loans than most states do. This inhibits refinancing by borrowers to get lower rates.

States argue that if the bank is doing business in the state, then it should be subject to state regulation. The OCC argues that its regulations supercede state regulations and won an injunction last year halting a probe by NY AG Eliot Spitzer into the lending practices of national banks doing business in NY.

Recently Spitzer responded by appealing to the Second Circuit US Court of Appeals in New York, saying that the OCC’s “….anticonsumer agenda seeks to drastically alter the balance of federal-state powers, and would leave New York powerless to protect its residents from unscrupulous practices.”

I agree with Spitzer on this one. The OCC lets the banks get away with things no self respecting regulator would allow. One more reason to try to do business with local, state regulated, banks.

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