NCUA Issues Three Opinion Letters Preempting State Lending Laws

WASHINGTON-Following a hearing in which House Financial Services Committee Chairman Mike Oxley (R-Ohio) spoke favorably of preemptions by the Office of the Comptroller of the Currency, NCUA issued three legal opinion letters preempting state lending laws. One legal opinion letter (03-1106) addressed to a New Jersey attorney said that the New Jersey Homeownership Security Act of 2002, addressing predatory lending practices, is preempted by NCUA’s lending regulation. NCUA Associate General Counsel Sheila Albin wrote that the law was preempted “because it purports to limit or affect the rates, terms of repayment and other conditions of loans and lines of credit that FCUs may offer to their members.” According to the letter, the law requires disclosures and prohibits certain terms and conditions in “home loans” and others as defined by the statute. The state law outlaws balloon payments and increases in interest rates after default among other things. Albin cited the recent Georgia lending law that NCUA and other federal regulators preempted. The other two opinion letters dealt with debt cancellation products. According to Albin, these products are permissible via NCUA’s incidental powers rule despite what state laws may say (03-1120). “State laws that prohibit or limit creditors from charging DCA (debt cancellation agreement) fees essentially bar them from entering into DCA with borrowers,” she wrote. Therefore, NCUA’s lending law preempts the Colorado state law in this case, Albin wrote. Finally, debt cancellation agreements are not insurance products and do not require a state insurance license, the last letter (03-1039) stated. With the House Financial Services chairman describing the OCC’s preemption as “a thoughtful attempt to codify and harmonize,” according to NAFCU Director of Legislative and Political Affairs Brad Thaler, it is unlikely to see congressional action, at least through that committee. The Senate Banking Committee was scheduled to hold a hearing on the OCC’s preemption last Thursday, but it was held up by the discovery of ricin in the Senate Office Buildings. -