In case you missed it, former U.S. Comptrollers of the Currency are speaking out against a growing threat to America’s financial stability. In a recent op-ed, Eugene Ludwig, who served under President Bill Clinton, and John Dugan, who served under President George W. Bush, expressed their concern over state-led efforts to impose non-uniform regulations on national banks, describing these moves as both “anti-free market” and “anti-consumer.”
Sounding off in the American Banker on Monday, Ludwig and Dugan write:
“A troubling threat to this system is emerging in both red and blue states across the country. In Illinois and Florida, for example, state legislatures — one Democrat-led, and one Republican-led — are requiring nationally chartered banks to comply with new state rules that would regulate the fundamental business of banking.”
The authors cite the Illinois Interchange Fee Prohibition Act (IFPA) as a key example of state laws encroaching on national banking standards. The law, which bars interchange fees on the tax and tip portion of card transactions, is currently being challenged in federal court. In a recent amicus brief, the Office of the Comptroller of the Currency (OCC) weighed in, going as far as to say the Illinois law is “ill-conceived, highly unusual, and largely unworkable.”
Ludwig and Dugan warn that allowing states to set their own banking rules will create a fragmented system that resembles pre-Civil War banking chaos that President Lincoln and Congress hoped to end when they established the national banking system:
The op-ed also highlights the broader risk that state laws like Illinois’ IFPA could lead to a “domino effect” of state-by-state regulations that would balkanize the U.S. financial system, echoing concerns from the OCC’s recent brief, which points out: “If the court doesn’t act, it may well trigger a domino effect of other states and localities enacting similar laws.” And, as AFFM recently wrote in the Chicago Sun-Times:
“If other states follow Illinois’ lead in injecting state regulators into the business of national banks, we could soon face a patchwork of inconsistent and likely conflicting laws across the country, catching small businesses and consumers in the crossfire.”
The former comptrollers also note overreach in the Sunshine State: “Under Florida law HB 989, national banks lost discretion to make day-to-day lending and other risk management decisions free from state interference and scrutiny.” Although this law has not faced a legal challenge yet, Ludwig and Dugan believe the OCC’s action in Illinois sends a clear message to other states.
The bottom line is that states infringing on national banking rules harms banks and undermines the safety and soundness of the U.S. financial system, and will ultimately affect hardworking Americans. “To allow these state practices to stand will undercut the safety of America’s banking system and hurt American businesses and consumers. We should all thank acting Comptroller Hsu and the OCC for drawing the line in Illinois and defending a national banking system that works for all of us.”
To read the full op-ed in the American Banker, click here.
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