BANKING INDUSTRY COMPLIANCE CHALLENGES PREEMPTION

1
BANKING INDUSTRY COMPLIANCE CHALLENGESPREEMPTION

• Denise L. DesRosiers
• SVP and Assoc. Gen. Counsel
• JPMorgan Chase Bank

Add Your Company Logo Here
2
OCC PREEMPTION

• OCC Preemption Rule (Jan. 7, 2004)
• Except where made applicable by federal law,
  state laws are preempted if they
• obstruct, impair or condition a national banks
  ability to fully exercise its lending,
  deposit-taking, or other powers granted under
  federal law.

3

• State Laws Preempted by OCC Rules
• OCC regulations provide illustrative (not
  exhaustive) list of state law restrictions
  generally preempted as to national bank,
  including Lending
• Licensing and registration
• Ability to require private mortgage
  insurance
• Loan to Value ratios
• Terms of credit (loan amortization
  minimum payments)
• Interest on escrow accounts
• Disclosure and advertising
• Processing, origination, servicing,
  sale or purchase of mortgages
• Deposits

4

• State Laws Not Preempted by OCC Rules
• Non-preempted laws listed in the OCC
  regulations
• Contract law
• Tort law
• Criminal law
• Certain homestead laws
• Property acquisition/transfer law
• Taxation law
• Zoning law
• Debt collection law
• Any other law the effect of which the OCC
  determines to be
• incidental to the lending operations,
  deposit-related operations, or to the exercise of
  other national bank powers or
• otherwise consistent with national bank powers
  and authority

5

• State Laws on neither Preempted nor Non-Preempted
  Lists
• State laws will be preempted if they
• obstruct, impair or condition a national
  banks exercise of its lending, deposit-taking,
  or other powers granted to it
• have more than an incidental effect on
  the national banks activities
• Predatory Lending Laws
• Unfair and Deceptive Acts and Practices (UDAP)
• State laws that prohibit national banks from
  engaging in truly fraudulent or deceitful conduct
  (such as making false or misleading
  representation to borrowers) versus state laws
  that attempt to regulate national banks
  operations even if enacted under the guise of
  prohibiting unfair and deceptive conduct

6
REGULATORY

• OCC Anti-Predatory Lending Standards (Jan. 2004)
• National banks prohibited from making consumer
  loan (whether secured by real estate or not)
  based predominantly on the potential foreclosure
  value of the collateral and without regard to the
  borrowers ability to repay the loan
• National banks prohibited from engaging in unfair
  and deceptive practices, as defined under the
  Federal Trade Commission Act, in connection with
  any type of consumer loan
• Interagency Guidance on Nontraditional Mortgage
  Products (Jan. 2006)
• Restriction on collateral lending
• Stringent monitoring requirements (including
  disclosures and marketing practices) for third
  party originators outside of lenders control

7
INVESTOR

• Effect of preemption positions on whole loan,
  securitization and servicing transactions.
• Agency transactions
• Private sales and securitizations

8
PREEMPTION

• Factors for consideration
• Is compliance the industry custom?
• Does compliance provide any benefit to the lender
  (i.e. safe harbors, etc.)?
• What are the penalties for noncompliance
  (criminal or financial liability)?
• Does compliance provide any customer service
  benefit?
• Is the jurisdiction in question of particular
  concern with respect to the likelihood of adverse
  litigation ?
• Is the jurisdiction in question one in which the
  lender maintains a significant presence (in
  footprint)?
• Could lack of compliance have any discriminatory
  affect?
• Could lack of compliance be considered an unfair
  or deceptive act?
• What is the authority of the law in question
  (state constitution, state law, state
  regulation)?
• Are there any contractual considerations?
• Are there any political or public policy
  considerations?