A new letter by the Office of the Comptroller of the Currency sketches how the national bank regulatory agency will implement preemption provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act, sending the clearest signal yet on what those sections will mean for national banks and federal thrifts.

The letter, which came on the heels of an important May 11 federal appeals court ruling on preemption, signals that a major battle is now under way on how to interpret and apply the new provisions.

The six-page letter by Acting Comptroller of the Currency John Walsh to Sen. Thomas R. Carper (D-Del.)—who authored a critical preemption amendment as the Dodd-Frank Act was being crafted—said the OCC will propose changes to a 2004 preemption regulation that has sparked years of policy battles and court actions.

Basic Conflict Standard Still Applies

But Walsh said the proposed rule will clarify that a basic conflict standard will continue to apply.

And Carper quickly released a statement that said the OCC’s interpretation squares with his amendment.

“I am glad to see that the Comptroller’s view of these provisions is consistent with my intent, and the legislative language that I worked so hard to include in the Dodd-Frank legislation,” Carper said in a statement released by his office May 13.

The proposed rule, Walsh said, will clarify application of identical standards for banks and thrifts under the National Bank Act and the Home Owners Loan Act. Under Dodd-Frank, the OCC will supervise national banks and federally chartered savings associations.

He also said the proposal will strike some language from the 2004 rule that has caused confusion.

OCC: Barnett Standard Still Applies

But according to Walsh, Section 1044 of the Dodd-Frank act says preemption decisions must be made in accordance with the U.S. Supreme Court’s 1996 ruling in Barnett Bank of Marion County, N. A. v. Nelson (517 U.S. 25).

That standard, which is used in the 2004 rule, still applies, according to Walsh, who said the forthcoming proposal will make that clear.

“Thus, under the Barnett preemption provision, precedents that are consistent with the principles of the Barnett conflict analysis are preserved. These include judicial decisions, interpretations, and the OCC’s rules, where preemption was premised on Barnett-based principles of conflict preemption,” Walsh said.

Walsh’s letter was a response to questions by Carper. During consideration of Dodd-Frank, Carper authored a key amendment on preemption that was later adopted “with slight modifications,” according to Walsh, by the House-Senate conference committee and enacted into law…

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Senate Banking Committee Chairman Dodd and ranking Republican Richard Shelby have traded competing proposals on consumer protection in a complex legislative contest on how to revamp U.S. financial services regulation. According to a summary, Dodd’s proposal calls for a consumer protection unit within the Treasury, instead of a stand-alone Consumer Financial Protection Agency. Shelby’s plan would create a new Consumer Protection Division inside the Federal Deposit Insurance Corporation, according to his summary….

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