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Bank regulator defends power over states

By Dave Clarke

WASHINGTON (Reuters) - The agency that regulates national banks issued a final rule on Wednesday rejecting claims that it is seeking to keep too much power to block states from enforcing consumer laws over large banks.

How much authority the Office of the Comptroller of the Currency has to block, or preempt, states' attempts to go after the national banks has been a hot-button issue since the years leading up to the 2007-2009 financial crisis.

The Dodd-Frank financial oversight law sought to clarify the OCC's authority, but so far it has only rekindled tensions between the agency and its critics.

Consumer advocates have argued the OCC has been too lax in keeping the banking industry in line and too aggressive in keeping states from going after large lenders.

The OCC says it needs to protect banks from a conflicting patchwork of state laws that could restrict banks' ability to offer financial products.

"Throughout our history, uniform national standards have proved to be a powerful engine for prosperity and growth," the agency wrote in its rule released on Wednesday.

OCC's initial preemption proposal in May drew sharp criticism.

The Treasury Department, for instance, in June wrote that the proposal ignored key parts of Dodd-Frank, while state attorneys general said OCC was continuing its "disregard for the lawful role of the states."

The OCC -- which oversees large banks such as Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co -- rejected most of these arguments in its final rule.

It said national banking standards benefit consumers and give clarity to banks operating in multiple states.

It also dismissed complaints that it played a major role in allowing predatory loan practices to proliferate in the years leading up to the financial crisis. It argued that these abuses occurred mostly at lenders that are not regulated by the OCC.

The Treasury Department and the National Association of Attorneys General declined to comment on the final rule.

The American Bankers Association praised the agency.

"Today, the OCC clarified the rules of the road for national banks and how they serve their customers," Kenneth Clayton, the ABA's chief counsel, said in a statement. "This means that bank customers -- regardless of where they live or work -- will have a consistent, high-level set of consumer protections nationwide."

A key point of contention is the standard the OCC should use when deciding whether to step in and prevent a state from taking action against a bank.

Both Treasury and NAAG argued that Dodd-Frank makes clear that OCC should take action only if a state law "prevents or significantly interferes" with a bank's ability to conduct its business under federal law.

OCC said this is too limited a view of its powers under Dodd-Frank and stood by it May proposal.

The OCC's stance has the support of the primary authors of the language in the law -- Democratic Senators Tom Carper and Mark Warner -- a point the agency made on Wednesday.

(Reporting by Dave Clarke; Editing by John Wallace)

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