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The OCC Is a Problem Agency

posted by Adam Levitin

It's time to say it loud and clear: the OCC is a problem agency.

Here's a list of only some of the issues from the past year: the fair access rule, toleration of rent-a-banks, the valid-when-made rule, the true lender rule (that the FDIC notably didn't copy), the fintech charter, Figure's bank charter application, failure to deal with BoA's fair housing issues; failure to take JPM's unauthorized overdrafts seriously, even a ridiculous interpretation of preemption standards that came out today. (Does this laundry list of problems remind anyone of the FHLBB or OTS?)  

While the current Acting Comptroller has been particularly aggressive in pushing bad ideas, it's not just him. The OCC's been a problem in the past under a range of Comptrollers, even in Democratic administrations. We'll see who President-elect Biden puts in to run the agency, but I suspect that even if the next Comptroller wants to take the OCC in a different direction, it will be difficult. It seems that the agency truly believes that national banks should not be subject to any state regulation (even when Congress says otherwise) and that it is not willing to impose serious consequences for serious consumer protection violations.

The OCC was created in the first place because of a (less-than-successful) plan for financing the Civil War through the sale of national bank notes. In order to sell those bank notes, one needed a national banking charter--which was a revenue source--and national banks were required to buy US gov't debt in a ratio to their note issuance. To make folks want to buy national bank notes, the banks had to be safer and sounder than the state banks. That's why the OCC was created (and hence it's weird name).

We're long past that era, however. National bank notes are a thing of the past. So why do we still have an OCC, when the FDIC and Fed perform the same role?  What's the purpose today of federal chartering of (some) banks, when every other type of business is chartered at the state level? The only answer I can find is path dependence, and that's not a sufficient answer when that chartering is at the core of a problem agency.


Perhaps what the OCC, as well as other problem agencies like the United States Trustee Program, need an few other academics to roll up their sleeves and follow the lead of fellow Credit Slipsters Elizabeth Warren and Katie Porter by putting themselves forward to bring a more pro-consumer thrust to these government entities?

I would not be too sure that the FDIC's positions on many of these are, or will remain, as laudable as your column suggests. As a former FDIC senior compliance examiner, my experience has been that the FDIC's silence on an issue should not necessarily be taken for opposition to the OCC's hostility to consumer protection. More often, it is simply an indication that the particular issue is not well understood, and should be deferred.

Often, this deferral extends for a number of years, resulting in continuation of consumer harms. Examples from my experience would include (in addition to failure to allow appropriate investigation of legitimate potential fair lending issues identified by field examiners) a continuing failure to address inappropriate calculation of overdraft conditions which cause excessive fees (identified by examiners as a significant problem circa 2010, but not yet formally addressed by the FDIC), and a consistent failure to address rather obvious RESPA Section 8 matters.

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