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94–902 PDF 2004

OVERSIGHT OF THE OFFICE OF THE

COMPTROLLER OF THE CURRENCY:

EXAMINATION OF POLICIES,

PROCEDURES AND RESOURCES

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 1, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–78

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

April 1, 2004 ..................................................................................................... 1

Appendix: 

April 1, 2004 ..................................................................................................... 51

WITNESSES 

THURSDAY, APRIL 1, 2004

Hawke, Hon. John D. Jr., Comptroller of the Currency ....................................... 10

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 52

Emanuel, Hon. Rahm ....................................................................................... 54

Gutierrez, Hon. Luis V. .................................................................................... 55

Israel, Hon. Steve ............................................................................................. 57

King, Hon. Peter T. .......................................................................................... 58

Hawke, Hon. John D. Jr. (with attachment) .................................................. 60

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

‘‘Friendly Watchdog’’ article, Wall Street Journal, January 28, 2002 .......... 87

Scott, Hon. David: 

Letters to Hon. John D. Hawke Jr. from Georgia Department of Banking 

and Finance, August 21, 2003, March 9, 2004 ........................................... 91

Hawke, Hon. John D. Jr.: 

Written response to questions from Hon. Spencer Bachus ........................... 96

Written response to questions from Hon. Scott Garrett ............................... 101

Written response to questions from Hon. Sue W. Kelly ................................ 101

Written response to questions from Hon. Brad Miller .................................. 107

Written response to questions from Hon. Tim Murphy ................................ 120

Written response to questions from Hon. Barbara Lee ................................. 115

Written response to questions from Hon. Maxine Waters ............................ 102

(1)

OVERSIGHT OF THE OFFICE OF THE 

COMPTROLLER OF THE CURRENCY: 

EXAMINATION OF POLICIES, 

PROCEDURES AND RESOURCES 

Thursday, April 1, 2004

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to call, at 10:18 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael Oxley [chairman of the Committee] presiding. 

Present: Representatives Oxley, Leach, Bachus, Kelly, Paul, 

Gillmor, Ose, Green, Feeney, Hensarling, Garrett, Murphy, Frank, 

Waters, Maloney, Gutierrez, Velazquez, Watt, Ackerman, Carson, 

Sherman, Lee, Inslee, Moore, Lucas of Kentucky, Crowley, Clay, 

Israel, Miller, Emanuel, Scott and Bell. 

The CHAIRMAN. [Presiding.] The committee will come to order. 

The committee meets today for the latest in a series of oversight 

hearings we have planned for this year on the Federal agencies 

under the Committee’s jurisdiction. Last month, the Oversight and 

Investigations Subcommittee, under Mrs. Kelly’s leadership, held a 

hearing on the operations of the Federal Deposit Insurance Corporation. Today, we turn our attention to the Office of the Comptroller of the Currency, the independent agency within the Treasury Department that charters, supervises and regulates the more 

than 2,000 institutions that make up the national banking system. 

We are pleased to have back before the Committee the Honorable 

Jerry Hawke, who has recently returned from a brief medical leave 

to resume his duties as the Comptroller of the Currency. Comptroller Hawke, we welcome you back, and we wish you a continued 

speedy recovery, and from the looks of things, you are doing quite 

well. 

In addition to reviewing the operations and regulatory policies of 

the OCC, today’s hearing provides an opportunity to take stock of 

the health of the national banking system. Last week, the OCC released its report on the condition of national banks in the fourth 

quarter of last year, reflecting net income 21 percent higher than 

for the same period a year ago, markedly improved credit quality 

and record numbers for both return on equity and return on assets. 

Even with all of the shocks that our economy has undergone over 

the past 4 years—beginning with the bursting of the tech bubble 

in 2000 and continuing through 9-11 and the scandals in corporate 

America—the fundamentals of the U.S. banking system appear to 

2

have never been stronger. This surely bodes well for the sustainability of the economic recovery that has begun to take hold in recent quarters, as banks with sound balance sheets are well-positioned to make the kinds of loans to creditworthy borrowers that 

can help to fuel growth and create jobs. 

One by-product of the record profitability that the banking industry has enjoyed in recent years has been an increase in merger activity among some of the country’s largest institutions, including, 

within the past 6 months, three supervised by the OCC: Bank of 

America, Fleet and Bank One. While the trend toward consolidation in the financial services industry is not a new phenomenon by 

any means, these most recent mergers nevertheless raise important 

issues regarding the future structure of the banking industry. 

As the primary Federal regulator for the Nation’s largest and 

most complex banking organizations, the OCC faces a particular 

challenge in maintaining an examination force with the technical 

expertise necessary to ensure that these institutions are operated 

safely and soundly while continuing to meet the needs of the communities they serve. 

Since its inception 140 years ago, the national banking system 

has offered banks that operate on a multi-state or nationwide basis 

the ability to do so under unified Federal supervision, and pursuant to one set of rules established at the national level. This fundamental principle, which has been reaffirmed in numerous Supreme 

Court opinions, has come under fire in recent months from opponents of regulations issued in final form by the OCC in February 

that seek to codify the supremacy of Federal law as applied to national banks. 

As a State legislator for 9 years before coming to Congress, I do 

not dismiss lightly the claims by State banking commissioners and 

others that the OCC regulations undermine the dual chartering regime that has been a hallmark of the U.S. banking system since 

Civil War days. However, I simply cannot agree with my friends 

in the States that subjecting national banks to a patchwork of inconsistent standards set by State legislatures and local municipalities is either required by the dual banking system or in the best 

interests of the customers of those institutions. 

In January of this year, Mrs. Kelly’s subcommittee held the first 

congressional hearing on the OCC’s preemption regulations. The 

hearing was a fair and balanced look at this complex issue, at 

which the OCC and its critics were both afforded opportunities to 

state and defend their positions. Since then, the OCC has taken 

several constructive steps to address legitimate concerns expressed 

by members and witnesses at that hearing. On March 1st, the OCC 

issued guidance to national banks stating the OCC’s expectation 

that when national banks or their operating subsidiaries receive 

customer complaints forwarded by State authorities, they must 

take appropriate measures to resolve those complaints fairly and 

expeditiously. 

Then last week, the OCC published a proposed rule that, once 

fully implemented, will result in a full listing of all national bank 

operating subsidiaries being available to the public over the Internet to facilitate the processing of consumer complaints against such 

entities. I applaud the OCC for taking these important steps, and 

3

I encourage the agency to continue to reach out to its State counterparts to address areas of common concern. 

Before I conclude my remarks, let me say a few words about 

Basel. This committee remains extremely concerned about the potential competitive impact that the Basel proposals might have on 

the U.S. banking system and about the continued lack of consensus 

among Federal banking regulators regarding the merits of the proposal. I will be particularly interested in hearing Comptroller 

Hawke’s views on studies released recently by other Federal banking agencies addressing both the competitive issue and the potential effect of the new Basel framework on the prompt corrective action regime that applies to U.S. banks. 

With that, I now recognize the gentleman from Massachusetts, 

Mr. Frank. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 52 in the appendix.] 

Mr. FRANK. Mr. Chairman, I want to begin by expressing my full 

agreement with your last comment and indeed to thank the Comptroller for the work he is done with regard to the Basel agreement. 

We had our attention called to it, as you know, some time ago and 

confronted a situation which we thought was unbalanced and in 

which the full range of regulatory opinion wasn’t being represented, and some legitimate concerns were not getting put forward. So I share your continued concerns about Basel, and I want 

to begin by saying in this case I think the Comptroller as well as 

the FJC have played a very useful role in giving us a chance to 

fully understand the implications of what was being proposed. 

Now, no more Mr. Nice Guy. But I did welcome the chance to 

join you in that, because I want to make it very clear that what 

we are talking about here on the preemption issue are very profound differences of a policy and indeed even a philosophical nature. And they are not personal. I don’t have any criticism; indeed, 

quite the contrary. I think the Comptroller has done an excellent 

job, and we are glad to see him back here in good health. But there 

are profound differences. 

We had a hearing yesterday in this committee room in the Subcommittee on Capital Markets on proposals to basically reverse 60 

years of American history in which insurance was essentially a 

State-regulated matter, and the degree of Federal takeover and 

Federal influence and Federal preemption was on the table. Today, 

we talk about an increase in power by the Federal Government 

over bank regulation, both in terms of the impact it has on national 

banks and in terms of the approach of the Comptroller’s Office to 

try to increase the number of banks that are nationally chartered, 

partly induced by this particular set rules. 

Last year, we passed, overwhelmingly, a set of rules which continued the preemption of the States on credit. Now, as we deal with 

these issue by issue, I think, Mr. Chairman, the time has come for 

us to begin to acknowledge what we are talking about. And the 

question is this: To what extent are the States at all economically 

relevant? An argument can be made that they are very diminished 

relevance. 

And we talk about globalization and obviously nationalization is 

a small piece of globalization. The greater includes the less here. 

4

But what we have got—this is not a matter of making partisan 

points about who is for States’ rights or not—there does appear to 

be a significant shift in opinion, certainly on the majority side, 

shared to some extent on our side in various centers of opinion, 

that the time has come significantly to diminish the role of the 

States in economic regulation. Now, that is something we shouldn’t 

just be dealing with piece by piece; we have to confront it. 

Part of the problem is, and this is where it gets trickier in particular, the States have traditionally taken a lead role in the consumer protection area. And I forgot to add as I talk about this concern about the diminishing role of the States, we had a prolonged 

debate in this committee about whether or not we should increase 

the role of the Federal Securities and Exchange Commission and 

diminish the role of State regulators in the securities area. We ultimately resolved that, Mr. Chairman. I thought you played a very 

useful role in that. We resolved it, but I think it is a very reasonable way by directing the SEC and urging the States to talk about 

coordination. 

But there is a pattern here: Securities regulation, insurance, the 

granting of credit. Now, we are talking about national banks, particularly predatory lending and other consumer roles. In every case, 

we are talking about a significant shift from State to Federal 

power, and it ought not to be done piece by piece; we need to really 

look at it. This committee is best positioned to do that. 

Now as to the specifics here. I really want to urge my friends in 

the banking community to reconsider the notion that the way to 

deal with this complex set of issues is by regulatory action alone. 

This is not a technical matter, and it is not a matter of whether 

or not the law allows it. That is to be ordered in court, and we are 

not a court. We decide what the law should be, not what the law 

is. The implications of this are far-reaching. The Comptroller has 

said, ‘‘Well, this is just the way the law always was.’’ I must say 

that I am unpersuaded that every Attorney General and every 

bank commissioner misunderstood the law previously, because it is 

the unanimous opinion of every Attorney General and every bank 

commissioner that this represents change. Change isn’t necessarily 

bad, but I don’t think it serves us in dealing with important philosophical and economic and policy issue to act as if it really isn’t an 

issue at all. 

And I want to say to my friends in the banking community, I understand that you would like to deal with this. To some extent I 

must say I get a little bit of the Thomas a’ Beckett emanation from 

my friends in the financial community, ‘‘Will nobody rid me of this 

meddlesome priest?’’ The meddlesome priest being the States, and 

they swat him over here in credit and swat him in insurance. Well, 

be careful, that didn’t work out so well for King Henry. Don’t get 

yourself—is that the right king? Don’t get yourselves in the same 

kind of position. I will ask to revise and extend if I got the king 

wrong. 

And I would just ask for one more minute, Mr. Chairman, if I 

might, just to say because this is such a thoroughly important 

issue, let’s use a different model. Last year, many of the people in 

this room, both on our side and in the audience, consumers and 

members of the industry and regulators collaborated on a bill 

5

which extended Federal preemption in the extension of credit in a 

way that reached pretty good consensus. Our friends from California were understandably concerned because California had been 

in advance here and to my regret we weren’t able to protect California’s decision as much as I would like, but for virtually everybody else in the country we preserved the function that credit plays 

in the economic system while increasing for literally everybody outside of California the degree of consumer protection and giving a 

reasonable amount of consumer protection. 

I urge my friends, let’s work together to duplicate that process. 

Do not think it is a good idea simply to use the fact that you have 

got the existing legal authority and push through something that 

is so controversial. It is not good for the stability of the economic 

system. One of the things we want is a sense that what we have 

done will go forward. 

When every Attorney General and every bank commissioner, Republican and Democratic, is so stridently in opposition, when you 

have a very strong bipartisan leadership of the chairwoman of the 

Oversight Committee, the gentle woman from New York, ranking 

member, the gentleman from Illinois, working together this is not 

the way to do it. Yes, there are arguments for preemption, there 

are arguments for economic uniformity, there are concerns about 

whether that is done with adequate consumer protection. Clearly, 

the Comptroller does not have statutorily the ability to deal with 

predatory lending that most of the States think or many of the 

States think are necessary. 

So I ask the people, let’s join together and in the case of the 

question of the authority of the Comptroller to preempt and deal 

with national banks, let’s follow the model that we followed last 

year. It is my impression that my friends think that ended well, 

and even some people who may not be such great friends, but all 

of us together, I think, thought we had a pretty good process. We 

preserved the economic needs of the system, and we provided consumer protection and you have a stable consensus system that will 

go forward. It is not in the interest of the financial community 

longer term, no matter what you think short term, to use your 

muscle to push something through that is inherently unstable because of the degree of resistance it has. 

And I would just close by saying, Mr. Chairman, I think we demonstrated on both sides of the aisle last year our ability to come 

together and deal with these issues in a sensible, balanced way. 

Please, let’s follow that model again. 

The CHAIRMAN. The gentleman’s time has expired. Under the 

rules of the Committee, the Chair is prepared to recognize members for three minutes for opening statements. 

With that, I recognize the gentleman from Iowa, Mr. Leach. 

Mr. LEACH. Just briefly, I would like to comment on the parameters of what was just discussed but from another issue perspective, and that is the contrasting role of States and the Federal Government. This committee has recently passed a significant banking 

reform legislation that ironically moves in a little different direction than the ranking member just indicated; that is, we are empowering five States to give authorities that have never existed before in the American financial services community, and that is to 

6

give the effective power, full power of banking to a charter called 

the ILC charter. And this takes out of the loop the preeminent Federal regulators of holding companies, that is the Federal Reserve, 

and puts what in effect is an uneven playing field in regulation in 

the system all at the command of the potential of five States. 

And I would only raise this in a significant way in terms of competitive inequity but also in breaches of the current framework of 

banking where holding company regulation has always been something that we have considered of significant dimension but also in 

terms of the breaching of commerce and banking where, quite literally, Congress is contemplating giving powers to non-banks 

greater than powers that are given to banks. And this is a very significant issue that I think ought to be seriously reviewed, and it 

is an aspect of decentralization that I consider to be wholly 

unhealthy. It has one modest effect of devaluating all bank charters in America. 

And as the comment was made to friends in the associations, I 

would say, quite frankly, that several of the associations representing America’s commercial banks have let down their community very significantly and that people ought to be thinking about 

this quite seriously from the perspective of the manner in which 

American economy is organized, the notion that some large institutions can breach the commerce and banking parameters in ways 

that have never been breached in modern day before is also very 

significant circumstance. 

And so it is my view that we have to be very careful as we weigh 

these issues of States’ powers versus Federal powers and recognize 

that while there can be competitive pluses and minuses, there also 

can be a real social change that can occur if we are not very careful. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I Thank the gentleman. 

The chair now recognizes the gentleman from Illinois, Mr. 

Gutierrez. 

Mr. GUTIERREZ. Thank you, Mr. Chairman. Good morning. I 

want to thank Sue Kelly, my Oversight Subcommittee chairwoman 

for originally calling this hearing to follow-up on our hearing of 

January 28. I am pleased that Comptroller Hawke has recovered 

sufficiently from his illness to join us here today and wish him 

again a speedy and full recovery. 

Due to the great interest in this issue, now it has become a full 

committee hearing, so I am happy to see that it has been expanded, 

the interest in this very, very important issue. 

I would also like to thank Ms. Kelly and Mr. Paul for their work 

on this important issue of OCC preemption. We are committed to 

working together with a number of our other colleagues on both 

sides of the aisle, including Ranking Member Frank, to ensure that 

our States have the power to protect consumers and to stop the 

OCC from eroding strong safeguards that have been used by States 

for more than a century to enforce consumer protection laws. 

It seems to me to make no sense for the OCC to attempt what 

many consider an unprecedented and unchecked expansion of its 

authority when States currently have the tools and the resources 

7

to effectively enforce consumer protection and other important 

laws. 

As many of you know, since our last hearing in January, representative Ron Paul and I passed an amendment to the Financial 

Services Committee’s budget views expressing concern regarding 

budgetary effects of the OCC’s recently published preemption rules. 

The budget views now put the Financial Services Committee on 

record that the OCC’s preemption rules represent an unprecedented expansion of authority and one that was instituted without 

congressional authorization. 

Let me just ask that the rest of my statement be included for the 

record, and with no objection, Mr. Chairman, I would just like to 

end with a few brief comments. 

The CHAIRMAN. Without objection. 

Mr. GUTIERREZ. Thank you, Mr. Chairman. I would like to see, 

Mr. Hawke, if we could follow up and expand on what I know your 

conversations with me and other members of this committee and 

the House as you recover from your illness to talk to us about this 

issue. And I want to thank you for taking the time to come to my 

office, sitting down and speaking with me. 

I think we have a difference of opinion, and I think people can 

hold differences of opinion, but I think at the same time what we 

are looking for, what you are looking for, I know what I am looking 

for and other members of this committee is that consumers be protected and that the soundness of our banking system be protected 

in this nation. Both of them are important and shouldn’t have to 

compete with one another. 

I think that if we brought bank examiners together, if we 

brought Attorney Generals together from throughout the States, if 

we brought your office and the good offices of this committee and 

others and sat down at a table where we could—not in some back 

room but quietly sit down in an open discussion so that we can 

share frankly our views and find that road that allows us to protect 

our consumers, which is our primary goal in this issue, and you to 

fulfill your responsibilities to the soundness of our banking system 

as one of your main goals, and also I agree with you, consumer protection, I think we can all reach that together. So I hope that after 

this hearing we can continue to do. 

We are going to take an additional step, Mr. Chairman, and that 

is that Congresswoman Sue Kelly and I are sending today this letter to the Honorable David Walker, Comptroller General of the 

General Accounting Office. We will give Mr. Hawke a copy of the 

letter where we ask for them to see whether or not these are unprecedented moves and whether or not statutorily they can do what 

they say along with other consumer protection issues. 

Thank you so much, Mr. Chairman. 

[The prepared statement of Hon. Luis V. Gutierrez can be found 

on page 55 in the appendix.] 

The CHAIRMAN. The gentleman’s time has expired. Are there further opening statements? If none, we will now turn to the gentleman from New York seeks recognition for an opening statement? 

Mr. ISRAEL. Yes, Mr. Chairman. 

The CHAIRMAN. You are recognized for three minutes. 

8

Mr. ISRAEL. Thank you. I want to thank you, Mr. Chairman and 

the Ranking Member Frank for conducting this important hearing 

today on OCC and their recent regulations. I also want to thank 

my colleague from New York, Ms. Kelly, as well as my good friend, 

Mr. Gutierrez, for leading the charge on this important issue. 

While I am not in agreement entirely with their stance, I am 

pleased that this important debate is taking place. 

I also want to thank our witness, Comptroller Hawke, for being 

here today. 

The discussion of late concerning the OCC has been about the 

issue of preemption and the powers of the OCC. But I believe the 

issue is bigger than that of the powers of national versus Statechartered banks or the presumed powers of the OCC. The real 

question here deals with ensuring the greatest protection of all 

American consumers with respect to stopping abusive lending practices. 

While I welcome the approach undertaken by the OCC of creating one uniform Federal standard for all national banks and 

their operating subsidiaries with respect to predatory lending as a 

way of creating a level playing field for all national banking customers, I also believe the regulations they have put in place on this 

front are weak at best. Our constituents have no idea where their 

bank is chartered, and, quite frankly, they don’t care. But they do 

care about protecting their money and their investments and keeping the access to capital free-flowing. 

The establishment of this national albeit weak standard by OCC 

drives home the need for real action by Congress this year to address predatory lending with a strong national law that governs 

lending at all financial institutions and their operating subsidiaries, regardless of where they are chartered. 

These are the issues we need to address in Congress. Thankfully, 

these actions by the OCC have had the desired effect of reigniting 

the discussion about real legislation to address the issue of nonprime lending and our Nation’s diverse patchwork of regulations 

governing it. Congress needs to develop legislation to create a new 

uniform Federal standard in lending practices that crushes predatory lending by correcting the non-prime market which continues 

to furnish capital to neighborhoods that were traditionally denied 

these resources, and I represent many of those types of neighborhoods. 

I look forward to today’s hearing and hope for a good back and 

forth volley on questions and answers, not only on the issue of OCC 

regulation but, more importantly, on the larger issue of the need 

for congressional action to address lending abuses this year to protect all banking customers regardless of where their bank is chartered. 

And I thank the chair and ranking member again for allowing 

me this time to speak, and I yield back the balance of my time. 

[The prepared statement of Hon. Steve Israel can be found on 

page 57 in the appendix.] 

The CHAIRMAN. The gentleman yields back. 

The gentleman from California, Mr. Sherman? 

Mr. SHERMAN. Thank you. This seizure of power by the OCC is 

sweeping away congressional intent, sweeping away all State laws. 

9

It is illegal, it is wrong and it is politically stupid. It is illegal because you can’t go way beyond anything Congress ever intended in 

terms of changing the way that our whole financial services industry is regulated. It is wrong because you have exposed consumers 

in my State to practices that my legislature wishes to prohibit 

without legislative hearings in this Congress. It is wrong because 

you have given a competitive advantage to one group of financial 

institutions over another, and, coincidentally, they happen to be 

the biggest, the most powerful and the biggest campaign contributors in the financial services industry. 

And it is politically stupid because neither the administration 

nor the majority party can disclaim responsibility for the harm to 

our Constitution, to our Federalism and to consumers that this is 

going to cause. Your agency does not have the capacity to deal with 

the consumer complaints, so you are really saying the consumers 

will have no way to complain. Your agency does not impose the 

limits on predatory lending that even this committee would feel 

necessary as part of national standards. The majority party cannot 

escape responsibility for this attach on Federalism and attach on 

consumers and attack on smaller businesses trying to do business 

with the national banks. You are part of the administration which 

must bear responsibility for your decisions. 

The majority party could put an end to this by a suspension bill 

this afternoon but has not done so. Instead we will await the action 

of the American people this November as they see that this fits 

into a pattern of unbridled corporate power and the unleashing of 

this corporate power, whether it is arsenic in our water or predatory lending in our real estate transactions. 

The CHAIRMAN. The gentleman yields back. Is there further—the 

gentleman from Georgia, Mr. Scott? 

Mr. SCOTT. Thank you very much, Mr. Chairman. I appreciate 

this opportunity. Mr. Hawke, thank you very much for coming. 

I am from Georgia, served in the Georgia legislature for over 25 

years, worked in banks and banking committee for all of those 25 

years. As you know, we are in the catbird seat, one of the leading 

players in our fight against predatory lending. When you preempted Georgia’s fair lending law, there were many concerns that 

were raised. One, that it might dilute consumer protections, it 

would be harmful to our dual banking system. 

But the most significant concern to me is this one: That the OCC 

and you, perhaps, Mr. Commissioner, and your failure to respond 

to a letter which was written by my commissioner, David Sorrell 

with the Georgia Department of Banking and Finance. And that 

letter was dated August 21, 2003. Seven months, Mr. Hawke. That 

is very, very disrespectful—disrespectful to Georgia, disrespectful 

to the people of this country that the OCC would preempt a State 

law. 

Our folks in Georgia in the catbird seat, one of those affected the 

most, we write letters and not one response in 7 months. And this 

letter regarded three issues concerning the OCC’s preemption of 

the Georgia’s Fair Lending Act. 

And Mr. Chairman, I would like to in the interest of time submit 

this letter for the record, if I may. 

10

[The following information can be found on page 91 in the appendix.] 

The CHAIRMAN. Without objection. 

Mr. SCOTT. I would also like to submit a letter on March the 9th, 

2004. Again, our banking commissioner of Georgia, Commissioner 

Sorrell, again wrote the OCC; no response. And he sent copies to 

our entire congressional delegation. 

Again, Mr. Chairman, if I may, I would also like to submit this 

March 9 letter for the record——

The CHAIRMAN. Without objection. 

[The following information can be found on page 93 in the appendix.] 

Mr. SCOTT.——if I may. 

The CHAIRMAN. Without objection. 

Mr. SCOTT. Which includes, Mr. Chairman, which includes a detailed chronology of the efforts that our State of Georgia has taken 

to solicit a response from the OCC. Very disrespectful and disregard, Mr. Hawke. I am not convinced yet that we do need a national law to regulate predatory lending practices or what standards would be written into such a law. That very well would preempt the States. My mind is open on that issue. However, the 

OCC’s actions are a good reason for Congress to assert some authority on these issues. 

And while the Georgia Fair Lending Act was indeed a flawed law 

concerning the assigning liability, we were responding to a very serious issue of predatory lending in that State. Georgia is the poster 

child for abuses of predatory lending. Federal regulatory preemption should be conducted in an open manner with adequate opportunities for comment and surely secure the respect of the OCC. 

The CHAIRMAN. the gentleman’s time has expired. 

The chair would indicate to Mr. Hawke that the reason that the 

chair decided to have this hearing in the full committee was, as 

you can tell, there are a lot of strong opinions about the issue, and 

I thought it would be helpful to have a full committee hearing in 

that regard as opposed to the Oversight Subcommittee. And I think 

from the tenor of the debate, I think you can tell that this is why 

I made the decision I did. 

Again, we welcome you back to the Committee and you may 

begin. 

STATEMENT OF HON. JOHN D. HAWKE, JR., COMPTROLLER OF 

THE CURRENCY 

Mr. HAWKE. Thank you, Mr. Chairman, Ranking Member Frank 

and members of the Committee. I welcome the opportunity to appear before the Committee to review both the condition of the national banking system and the Office of the Comptroller of the Currency and to address other issues of particular significance. I think 

that members of the Committee have raised some very significant 

issues this morning that are very much worth discussing in greater 

detail. 

I also should say, Mr. Chairman, that I very much appreciate, on 

a personal level, the statements of good wishes with respect to my 

return to work, and I can only say that I hope I feel as good after 

this hearing is over as I did coming into it. 

11

The national banking system, approximately 2,100 financial institutions, holding 56 percent of all commercial banking assets, is 

in excellent health. By historical standards, the system is exceedingly well-capitalized. Today, all national banks, with minor exceptions, have risk-based capital above 8 percent, and less than 1 percent of national banks have risk-based capital below 10 percent. In 

2003, the national banking system set new earnings records as 

measured by return on equity and return on assets. 

National banks continue to play their traditional role as a key 

source of investment capital to America’s businesses and communities. In 2002 and 2003, total bank loans grew by 7.8 percent and 

7.6 percent, respectively. Consumer loans and loans backed by commercial and residential real estate have seen particular growth. 

Consumers have tended to use funds from mortgage refinancing 

and home equity lines to pay off higher interest credit cards and 

installment debt, a trend that has helped sustain overall consumer 

spending and that has been widely credited with having eased the 

duration and severity of the 2001 recession. 

Credit quality today is also strong, particularly for this stage of 

the economic cycle. The OCC continues to monitor developments in 

areas that present vulnerabilities, such as small business lending 

and certain real estate markets and property types. 

Let me now turn briefly to the condition of the OCC, an organization of some 2,800 people—1,700 of them bank examiners in the 

field. Their skill and professionalism are recognized and respected—and, in my view, unmatched—around the world. Our people work out of the OCC’s Washington headquarters, the Ombudsman’s office in Houston, and our 4 district offices, 49 field offices, 

and 23 satellite locations in cities throughout the United States, 

and our examining office in London. In our large bank program, we 

have teams of full-time examiners on-site, as many as 35 or 40 in 

our 25 or so very largest banks, and they constantly monitor the 

condition of those banks. 

The OCC receives no appropriated funds. All of our funding is 

derived from assessments and fees received from national banks. 

We have focused on modernizing our financial operating systems 

and ensuring that we manage our financial resources wisely. The 

agency’s budget has been balanced every year during my tenure as 

Comptroller, and we have been building our strategic contingency 

reserve to ease the impact of unforeseen disruptions to our operations or unexpected demands on our resources. Our present goal 

is to build the reserve to equal 6 months’ operating expenses, a 

goal that we expect to achieve in mid-2005. 

The OCC’s financial condition and the strength of its resources 

have taken on wider significance in light of some of the questions 

that have been raised about whether the OCC has sufficient resources to assure adequate protection for customers of national 

banks and their subsidiaries. These questions have been raised, as 

they have this morning, in the context of our recent regulations relating to the applicability of State laws to national banks and the 

role of State officials in enforcing consumer protection laws against 

national banks and their subsidiaries. 

I would be pleased to discuss these regulations in further detail, 

but let me state emphatically that neither regulation involves any 

12

fundamental shift in regulatory roles or responsibilities, neither alters the OCC’s continuing commitment to consumer protection, and 

neither should impose new or unmanageable burdens on our enforcement and compliance resources. 

We are proud of our long record of protecting consumers against 

abusive and unfair banking practices and developing supervisory 

innovations that have advanced that goal—innovations that have 

been emulated by other financial regulatory agencies. We have pioneered the use of section 5 of the Federal Trade Commission Act 

as a basis to take administrative enforcement actions against unfair and deceptive practices; we have thwarted payday lenders and 

their strategy to evade State laws through alliances with national 

banks; we have secured millions of dollars in direct restitution for 

consumers; we have developed comprehensive supervisory guidance 

to warn banks of the consequences of engaging in predatory lending; we have adopted special procedures to assure full and prompt 

consideration of customer complaints referred to us by State officials and much more. 

Indeed, our new preemption rule materially strengthens our ability to fight predatory lending by prohibiting national banks from 

making any consumer loan based predominantly on the foreclosure 

or liquidation value of a borrower’s collateral and disregarding the 

crucial question of whether the borrower can afford the loan. I 

think this issue lies at the very heart of predatory lending. Our 

advisories on predatory lending caution banks that if we find evidence of abusive practices, we will not only take strong enforcement action but we will take it into account in evaluating the institution’s CRA performance. 

At the OCC, consumer protection is a long-standing and integral 

part of our mission. Over 100 OCC examiners throughout the country are compliance specialists. They not only perform detailed compliance examinations but also serve as expert advisors on consumer 

protection issues to other examiners. And our 1,700 person strong 

field examination staff is backed by dozens of attorneys who work 

in enforcement and compliance. 

I would point out by way of comparison that State banking departments collectively supervise about 113,000 entities, of which 

approximately 6,000 are commercial banks. For all of these entities, the Conference of State Bank Supervisors reports that the 

States have a total of 2,308 examiners at their command. In other 

words, if each and every State examiner spent 100 percent of their 

official time examining commercial banks, leaving all 107,000 savings banks, thrifts, credit unions, mortgage bankers, payday lenders, check cashers, pawn shops and other sundry financial providers that variously fall under State authority entirely unsupervised, the OCC’s supervisory resources would still outstrip those of 

the States. The chart attached at the end of my written statement 

illustrates this comparison. 

Supplementing the work of our examining corps is our Customer 

Assistance Group, or CAG, which is co-located with the OCC’s Ombudsman’s Office in Houston. In 2003, this world-class operation 

processed more than 70,000 complaints and inquiries from bank 

customers in a prompt and sympathetic manner. It has also served 

as a de facto clearinghouse of complaints and inquiries that have 

13

been addressed to us but which really belong in other agencies. We 

have distributed to the Committee this morning a chart that shows 

the extent of the referrals that our Customer Assistance Group effects every year. Last year we received 6,550 referrals from State 

agencies, and we referred over 13,000 inquiries and complaints to 

other Federal and State agencies, including 755 primarily to State 

banking agencies. 

While some have mistakenly concluded that CAG is the means 

by which we carry out our enforcement and compliance responsibilities, that is not at all the case. Enforcement and compliance remains first and foremost the responsibility of our large battery of 

examiners and attorneys. The CAG is a very important adjunct to 

that resource. For example, we carefully track the volume of complaints we get, bank by bank, and if we see troubling patterns develop, CAG will promptly get our examiners involved to look into 

what might be going on at the bank to cause such a result. And 

we have had very good results from that. 

The OCC also cooperates with State authorities to accept referrals when the States receive a complaint regarding a national 

bank, and we make referrals to State authorities when we get a 

customer complaint regarding a state-supervised institution, as the 

data that I just referred to demonstrates. I think it is obvious from 

that data that the OCC and the States are already working together on a routine basis to help bank customers resolve their 

issues, and we would like to build on that foundation. 

We have invited State bank supervisors and State attorneys general to visit our Houston office to learn more about how we handle 

consumer complaints. We have established special procedures to 

handle and track referrals from State authorities concerning national banks and their subsidiaries that are alleged to have engaged in abusive or predatory practices. We issued a new advisory 

letter to national banks clarifying our expectations about how they 

should handle consumer complaints forwarded to them by State 

agencies, and we have made it clear that we will not look kindly 

on a bank that cites the OCC’s exclusive visitorial power as a justification for not addressing referred complaints or providing information about the disposition of complaints to State agencies. And 

we have proposed a model Memorandum of Understanding to facilitate the sharing of information about consumer complaints with 

the intent of providing effective coordination of enforcement activities with State agencies. 

By coordinating resources and working cooperatively with the 

States, we are convinced that we can maximize benefits to consumers, close gaps between existing consumer protection laws, and 

most effectively target financial predators. And we welcome further 

dialogue with the States to explore those goals. 

One recent example is the coordination related to Security Trust 

Company, which was involved in the mutual fund scandals in Arizona. We worked with the SEC and with the Attorney General of 

New York very effectively and with great good will in that case. 

Finally, let me say a few words about the Basel II process. This 

is an enormously complex and important project, and the OCC has 

been deeply involved in it for more than 5 years. There are still important issues to be resolved as we approach the Basel Committee’s 

14

target date of mid-year 2004 for the release of a ‘‘final’’ paper, and 

we will continue to work hard on those issues. 

The important thing to understand about this process is that it 

is far from over. Before we adopt final implementing regulations for 

national banks, there are a number of important domestic processes that need to be completed. First, we must complete a new 

quantitative impact study, as we promised this committee, so that 

we will have a much sounder basis for estimating the actual impact 

of Basel II on the capital of our banks. Second, we must complete 

the economic impact analysis required by Executive Order 12866 so 

that there will be a much clearer understanding of the implications 

of Basel II for our economy. Third, we need to continue the dialogue with this committee and its counterpart in the Senate on the 

progress of this process and the issues that have been raised. Finally, we must draft and then put out for comment our final implementing regulations. 

I am confident as this process moves ahead we will uncover a 

great many more issues that will require us to go back to the Basel 

Committee for appropriate responses. I also feel confident that the 

current implementation date of year-end 2006 will be difficult, if 

not impossible, to realize. 

Let me say, Mr. Chairman, that the interest and involvement of 

this committee in this very difficult process has been of enormous 

value to us. Other members of the Basel Committee have followed 

very closely the proceedings of this committee and the public statements of its members on Basel II. This has not only strengthened 

our hand in the negotiation process but has sent the message that 

all legislators intend to have an important role in the oversight of 

this process, and for this we are very grateful. 

In conclusion, Mr. Chairman, the national banking system is 

sound, and its recent performance has been strong. It has successfully weathered the recent recession, and it is responding in dynamic fashion to changes in the financial services marketplace. The 

OCC, too, is keenly focused on keeping pace with change. We look 

forward to working productively with you, with members of this 

committee and with State officials as we pursue our efforts to 

achieve that goal. 

Mr. Chairman, I wondered if I could just take one additional moment on another matter. I want to pay tribute here to those employees of OCC who have been called to active duty in Iraq and 

particularly to four members of our staff who volunteered to go to 

Iraq as part of the U.S. team that is helping to rebuild that country. These courageous OCC staffers are working on the rehabilitation of the Iraqi banking system and are doing a fantastic job. They 

are in harm’s way every day, but they are demonstrating real dedication and we are enormously proud of all of our OCC colleagues 

that are serving in Iraq. 

Thank you, Mr. Chairman. 

[The prepared statement of Hon. John D. Hawke Jr. can be 

found on page 60 in the appendix.] 

The CHAIRMAN. Thank you, Mr. Hawke, and we all share your 

pride in the OCC folks who are in Iraq, particularly after recent 

developments in Iraq. They are very brave and strong Americans, 

and we appreciate their service. 

15

You mentioned Basel II at the end of your comments. It was 

about a year ago or so when you testified here before the Committee regarding both your substantive and procedural concerns 

about the Basel II capital proposal. What is your current position 

regarding the Basel II? I know we look forward to the quantitative 

impact study, which will be an integral part of the decision-making 

process. When can we expect that, and, just generally, where are 

we? In fact you indicated the 2006 goal would be difficult to attain. 

If you could give us a little better feeling for that date as well. 

Mr. HAWKE. I would be happy to, Mr. Chairman. The Basel Committee is meeting in May, and it is expected that a as a result of 

the May meeting what I refer to in quotations as the ‘‘final Basel 

paper’’ will be put out. It is not final except to the extent that it 

allows domestic processes to move ahead with something that has 

more specifics than we have seen in the past. 

There are still some very important open issues we are discussing here in the United States, for example, on an interagency 

basis, the treatment of retail credit and particularly credit cards. 

I have felt very strongly that we must be very careful not to adopt 

rules that have unintended adverse consequences for the enormously successful consumer credit industry that our banks have 

helped to develop in this country. 

After the Basel Committee comes out with its mid-year paper, we 

will begin the conduct of the quantitative impact study, which I 

think is enormously important because we don’t really have a solid 

basis today for determining—estimating the impact of Basel II on 

the capital of our banks. Following the quantitative impact study, 

we will begin to prepare domestic rulemaking matters that will 

translate Basel II into domestic rules, and we will continue the dialogue with this committee. 

During that process, I expect, based on past experience, that numerous issues will be raised that will cause us to go back to the 

Basel Committee for change or clarification. Just the quantitative 

impact study, for example, might tell us that the results of Basel 

II are that there will be an unacceptably expensive impact on the 

capital of our banks. We need to know that before we sign on to 

anything. So there is a lot of process still to come and an important 

role for the dialogue between us and the Basel Committee. 

The CHAIRMAN. Thank you. You have talked about your willingness to talk with State officials regarding ways to improve the handling of customer complaints, and I understand you have an agreement with State insurance regulators in all of the 50 States. Can 

that serve as a model for working with the State banking supervisors as well? 

Mr. HAWKE. I think it could be a very compelling model. We were 

not always together with the State insurance commissioners on 

substantive powers issues, but we have been able to put those 

issues aside. Congress resolved most of them in Gramm-Leach-Bliley. We now have agreements with 48 State insurance commissioners, and those agreements provide a very effective mechanism 

for the exchange of information and the referral of complaints 

about practices engaged in by the insurance affiliates of national 

banks. We also meet regularly with the National Association of Insurance Commissioners. 

16

The CHAIRMAN. The concern has been expressed in some quarters that the OCC’s regulations clarifying the applicability of State 

laws to national banks and their operating subsidiaries would 

somehow authorize those entities to engage in real estate brokerage activities. My reading of the regulations and current Federal 

law, namely Gramm-Leach-Bliley, suggests that there is no basis 

for this concern. Is that an accurate assessment? 

Mr. HAWKE. That is completely accurate. It is unfortunate that 

the realtors have persisted in misreading our rules, and we have 

tried to counsel with them and explain that nothing in our regulations remotely bears on real estate brokerage. National banks are 

not permitted to engage in real estate brokerage even though 

banks in 25 or 30 States are permitted to do that. This is an issue 

that is vastly premature. It relates to the realtors’ fight with the 

Treasury Department and the Fed over rulemaking under GrammLeach-Bliley. It has nothing to do with national banks or the OCC’s 

recent regulations. 

The CHAIRMAN. Thank you for clearing that up. Finally, in the 

past year, we have seen several major mergers involving national 

banks and the creation of an increasing number of megabanks that 

operate globally. What challenges does the rapid pace of industry 

consolidation pose to the OCC as the primary Federal regulator for 

Federally chartered banks? In that vein, we can all recall for a 

number of years when the largest banks in the world were listed, 

there would be maybe one U.S. bank in that category and several 

Japanese banks. 

The world has changed dramatically. There was a lot of concern 

expressed in a lot of quarters that where were the American banks 

in this new global economy? And it appears now we are very competitive in that area and will continue to be so, but what kind of 

pressures and goals does that present to you? 

Mr. HAWKE. Well, let me say first, Mr. Chairman, that we already supervise what I think could fairly be called megabanks. We 

have several banks in our portfolio that are extremely large, approaching, if not exceeding, the trillion dollar mark. And so we 

have had a fair amount of experience on the supervisory side in 

dealing with them. 

The expansion of the number of megabanks and the growth of 

the existing large banks will certainly present challenges. There 

will be an added degree of complexity. The risk management systems, the modeling that they use will become more complex, and 

we have got to keep up with that. The kinds of instruments that 

they issue will become more sophisticated. We have excellent people working in all those areas, and I think we are quite ready to 

take that challenge on. But we are spending a good deal of time 

in reviewing just how we supervise these large banks. 

As I said before, at the very largest banks, we have full-time, onsite teams of examiners. So our mode of review in these banks is 

continuous supervision. We are intimately involved with them all 

the time, and we will continue to be. 

The CHAIRMAN. Thank you. 

The gentleman from Massachusetts. 

Mr. FRANK. Thank you, Mr. Chairman, and I want to join you 

in expressing our support for the words that Mr. Hawke mentioned 

17

about the people serving in Iraq. That is a very important contribution. 

I want to call people’s attention to the CD that we are about to 

show that preaches Mr. Hawke. You are about to see Mr. Hawke 

in stereo. 

Mr. HAWKE. Before he lost weight. 

Mr. FRANK. You can use this as before and after. 

(VIDEO) 

Mr. HAWKE. ‘‘I am Jerry Hawke, the 28th Comptroller of the 

Currency. Banks in the United States have a unique privilege: The 

right to choose their primary regulator. The Office of the Comptroller of the Currency is the primary regulator of banks that hold 

the national charter, a unique and powerful instrument for carrying on the business of banking. How the OCC and the national 

charter can help banking organizations achieve their goals is the 

subject of this presentation.’’

Mr. FRANK. Thank you, Mr. Chairman. That is a teaser, and if 

people want to see the whole thing, I am a great respecter of intellectual property, they can contact—I don’t know, Jerry, you can 

give your web site later on and maybe they will download it without paying for it and we will get——

Mr. HAWKE. We have got extra copies. 

Mr. FRANK. Yes. I appreciate that you do. We are not in a static 

situation, we are in a dynamic situation, and part of the concern 

we have, many of us, is as made clear here. The emphasis on the 

preemption, the firmness of this, the great scope of it, OCC says, 

‘‘Well, it has always been that way.’’ People didn’t know it was always that way, and, clearly, the intention of that is to persuade 

people who have State charters to come to Federal charters. The 

problem I have is that it is not purely what we think of as banking 

activities. You have operating subsidiaries. 

With regard, for instance, to predatory lending, you have made 

the point that there hasn’t been a great deal of accusations in predatory lending at national banks to date accurately. But, again, you 

are out there advertising, you are encouraging people to come to be 

regulated by you under these new rules and change their charters 

and with this preemption. That is part of the problem. 

In particular, I was troubled in this article that is in the Wall 

Street Journal for the 28th of January by Jess Bravin and Paul 

Beckett called, ‘‘Friendly Watchdog.’’ I would ask unanimous consent it be put in the record. 

The CHAIRMAN. Without objection. 

[The following information can be found on page 87 in the appendix.] 

Mr. FRANK. Here’s the example that is particularly troubling to 

me. In Michigan, the State Motor Vehicle Sales Finance Act passed 

in 1950 requires auto dealers fully disclose installment payment 

terms, limits document preparation fees and restricts the conditions under which a car can be repossessed. The statute applies 

only to dealers who sell cars through installment plans. 

You have now preempted that, because the National City Bank, 

which is part of the National City Corp and the Huntington National Bank owned by Huntington Bank Shares of Columbus, Ohio 

has this relationship with the dealers who market their car loans. 

18

As a result of your preemption, Michigan’s law which applies to car 

dealers now doesn’t apply to car dealers if they are affiliated with 

a national bank. 

What is so important to the uniformity of the banking system 

that you now have to bifurcate Michigan’s administration of its 

laws applying to car dealer loans? Because if you buy a car on the 

installment plan and it is financed, I guess, by GMAC or by a State 

bank, it is one thing, but if it is by a national bank, those laws 

don’t apply. Then, additionally, what laws have you got, what rules 

do you apply? Are there comparable rules that you apply to protect 

people who buy cars under the installment plan? 

Mr. HAWKE. Well, let me say first, Mr. Frank, that preemption 

of course is a constitutional doctrine, and we——

Mr. FRANK. Mr. Hawke, that is not what I asked you. I have only 

got a limited amount of time. What rules have you got to protect 

car buyers? 

Mr. HAWKE. We don’t have any rules that——

Mr. FRANK. Any rules at all. So the effect in Michigan was that 

you canceled out those Michigan rules passed in 1950 and continued—apparently, Michigan hasn’t felt any need to change them in, 

what, 65 years? And you substitute nothing. Is that a good system? 

I mean now that you have made this clear, do you plan to adopt 

some rules dealing with people who buy cars? 

Mr. HAWKE. We don’t have any such intentions. But, Mr. Frank, 

I think it is important to recognize that that law prevented national banks effectively from making loans through car dealers, and 

it was a direct interference with the exercise of their Federal powers. 

Mr. FRANK. How did it prevent them? Did it prevent anybody 

else from making loans through car dealers? Are there no loans 

through—I mean what about State banks, do they make loans 

through car dealers? 

Mr. HAWKE. I don’t know what State banks do. 

Mr. FRANK. Well, they probably do. I mean you say it prevented 

them. It prevented them from making loans totally unrestricted, 

but of all places I think Michigan is probably a State where buying 

cars probably didn’t get interfered with. I mean they like buying 

cars and selling cars in Michigan. So the notion that the State of 

Michigan would for 65 years have maintained on its—it is 55 years, 

my arithmetic’s off—the notion that for 55 years would have retained on it books a law that made it hard for banks to finance cars 

is not credible. This is an example. 

Let me, and we are running out of time, so I just want to say 

why are you sending out the video? I mean do you have an institution or interest in getting banks to switch? Why do you care? I 

mean shouldn’t it just be that you are out there and if banks want 

to be national, you do this, and if they want to be—why are you 

recruiting? Why are you out there trying to encourage them to 

change their charter? 

Mr. HAWKE. Well, I will be happy to address the question why 

we prepared that video, which was done for——

Mr. FRANK. No, that is not what I—why are you out there trying 

to get them to change? 

19

Mr. HAWKE. I would like to answer the question that you raised 

about why we distributed the video, Mr. Frank, if I may. The reason that we prepared that video was because we get hundreds of 

questions all the time from organizers of banks, from lawyers and 

consultants who want to put banks together, and they ask us what 

can we tell them about the charter choice that they have to make. 

Mr. FRANK. Who did you send the video to, Mr. Hawke? 

Mr. HAWKE. If I can finish my answer, Mr. Frank. 

Mr. FRANK. No, because you are going to filibuster. I agree with 

you on some things, but I don’t want this—I am asking you very 

specific questions, and I think you are frankly evading the point. 

I think you sent that video in substantial part to persuade Statechartered banks to switch their charter. 

Mr. HAWKE. We send that video to people who are interested in 

knowing what the difference is between a national charter and 

a——

Mr. FRANK. That includes State-chartered banks, right? Do you 

only send it out to people who ask you or did you—I mean is this 

like a—is there a ‘‘don’t video me’’ list? 

Mr. HAWKE. No. We make it available to——

Mr. FRANK. Did you send this unsolicited to a lot of State banks? 

Mr. HAWKE. We don’t send it out unsolicited. We make it available to anybody who wants to pick it up at——

Mr. FRANK. What do you mean make it available? 

Mr. HAWKE. Mr. Frank, what we did——

Mr. FRANK. What do you mean by make it available? 

Mr. HAWKE. We have it available when bankers’ groups come 

through to visit us. We make it available——

Mr. FRANK. Do you suggest—do they ask you, ‘‘Hey, I heard you 

have got this hot new video, the Jerry Hawke video.’’ How do they 

know about it, these State banks? 

Mr. HAWKE. I will tell you what happens. The State bank supervisors are out there very aggressively marketing——

Mr. FRANK. No, no. Come on. I am sorry, now, Jerry, you are just 

filibustering. What do you do to make it available to State banks? 

Do you take the initiative in sending that video to State banks? 

Mr. HAWKE. We do not send it out unsolicited. 

Mr. FRANK. Do you call it to their attention? Do you call it to 

their attention? Come on. Don’t play around. 

Mr. HAWKE. If bankers’ groups come through, it is among the 

materials that we distribute to them, but——

Mr. FRANK. Without soliciting——

Mr. HAWKE. You are not letting me answer the question, Mr. 

Frank. 

Mr. FRANK. No. I resent that. You don’t want to answer the question. Here’s the deal: You are engaged in recruiting. This is part 

of your recruitment, and you don’t want to acknowledge it. And, 

frankly——

Mr. HAWKE. No. I do acknowledge it. 

Mr. FRANK.—you are better off acknowledging that you are recruiting. 

Mr. HAWKE. I do acknowledge it, but you won’t let me explain 

why we put this video together or how it is used or what it responds to. 

20

Mr. FRANK. I was asking you how it was used. You sent it unsolicited——

Mr. HAWKE. What it responds to is, first of all, inquiries that we 

get about people who want to form banks and they want to know 

what the difference is between our charter and the State. Second, 

we send it to national banks when they ask us if we have any materials to respond to the very aggressive marketing efforts of State 

bank supervisors who personally get in touch with our CEOs and 

with boards of directors to try to market the State charter and induce conversion, which is something we do not do. We provide it 

to them on request——

Mr. FRANK. All right. You have given me two categories. One, 

you send it out to people who ask for it; two, you send it to national 

banks who ask for it. But there is a third category and you are just 

being evasive. Clearly, you have acknowledged you make it available to others. Yes, you and the State-chartered banks are in kind 

of a competition here. 

Mr. HAWKE. I don’t deny that at all. 

Mr. FRANK. Okay. Well, you just tried to, I think, and I don’t understand why it is appropriate for the Federal bank regulator—I 

mean you don’t get paid by the bank, you are not on commission 

here. You are a regulator and I just think—and the problem I have 

is this, and I am going to close with this: If am the regulatee a 

competition between regulators to have me join up into their shop 

I think means, ‘‘Oh, gee, I have to look for who is going to regulate 

me the least.’’

I think it is counter to the public interest to have regulators in 

a competition. I will say the same thing to the States, but we don’t 

have as much control over them. I do not think the Federal bank 

regulator ought to be competing with others to try and induce the 

regulatees to come be regulated, and I think that is a big part of 

our problem. 

Mr. HAWKE. Well, I would invite you to look at the web sites of 

most State bank supervisors who very aggressively market State 

bank charters, and they do it in two ways. First of all, they exploit 

the Federal subsidy that is made available to State banks, because 

the Fed and the FDIC don’t charge for examination services. That 

is exploited every day by State bank supervisors. Second, they advertise with kind of wink how close they are and how responsive 

they are. 

Mr. FRANK. Let me just—I have one more. Why do you care? So 

some banks leave your regulatory jurisdiction and they go there. 

Just hurts your pride? I don’t understand this, why are you in this 

competition with them, you said you are. Why aren’t you just out 

there to regulate the banks that want to be national banks, and if 

they want to be State banks, that is also Okay? What is your institutional interest? 

Mr. HAWKE. I think the essence of the dual banking system is 

competition between charters. That is what it is all about. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Iowa, Mr. Leach. 

Mr. LEACH. Well, I would like to raise another question on the 

competitive regulation issue in another context in relationship to 

statute the House is advancing. The chairman of the Federal ReVerDate 0ct 09 2002 15:36 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 G:\DOCS\94902.TXT FIN1 PsN: MICAH
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serve has argued that the lack of activity limits on and consolidated supervision of the organizations which own ILCs create competitive inequities in the financial marketplace to the disadvantage 

of traditional national bank charters and traditional State bank 

charters. Does the 28th Comptroller of the Currency agree? 

Mr. HAWKE. Well, Mr. Leach, ILCs I know are an issue of great 

concern. It is not an issue that comes within our supervisory or 

regulatory involvement. The major issue with respect to ILCs is, 

obviously, as you said before, banking and commerce, which is an 

issue I know that you feel very deeply about. And the question that 

present is where to draw the line, a question that this committee 

has grappled with on many occasions. 

I think it is certainly appropriate for Congress to consider not 

only that policy but the safety and soundness aspects of depository 

institutions affiliated with non-banking operations and also the 

competitive issues that are raised by that. As I say, we haven’t 

really had occasion to take a position on this issue, because it is 

not something that comes within our regulatory jurisdiction. 

Mr. LEACH. But do you see any competitive inequities? 

Mr. HAWKE. Well, I think there are—any time you have a situation where an institution of that sort has powers that go well beyond those that are available for others, there is a potential for a 

competitive issue. 

Mr. LEACH. So even though you have already indicated there is 

competition between State and Federal regulators, you don’t think 

that the Comptroller should be deeply concerned that there are 

competitive inequities that affect institutions the Comptroller supervises or are you saying that they should? You are suggesting 

that the competitive inequities exist. 

Mr. HAWKE. There are a lot of competitive inequities. We hear 

complaints from our banks all the time about competitive inequities with credit unions, for example, who have a status that enables them to compete very vigorously with our banks. If ILCs, by 

virtue of the lack of restriction on who can own them, had competitive advantages over national banks, I think that would be of concern to us. Well, I will just leave it at that. 

Mr. LEACH. Thank you. No further questions. 

The CHAIRMAN. The gentleman yields back. 

The gentleman from Illinois, Mr. Gutierrez. 

Mr. GUTIERREZ. Thank you very much, Mr. Chairman. I would 

like to go back to the preemption because sometimes lenders put 

clauses in their contracts to discourage borrowers from every pursuing legal claims. In fact, some lenders put clauses in loan documents that make borrowers agree that only certain courts can hear 

their claims—a lot of language sometimes when you get a car or 

buy a consumer product. And so they do everything they can so 

that the consumer can’t go into certain courts. I think we all agree 

that that happens out there in the real world. 

Well, in Georgia, they had an anti-predatory lending that tried 

to stop this practice, and that law was preempted by the OCC. For 

the life of me I can’t figure out why the OCC would try to prevent 

Georgians from trying to protect themselves and their consumers 

and what the OCC would want to do in preempting a Georgia law 

22

so that Georgians who are getting ripped off have different avenues 

that they can go. 

And it seems to me that the Office of Thrift Supervision said that 

they did not believe they had that power to preempt the Georgia 

law on thrifts, yet apparently the OCC feels it has the same power 

that the Office of Thrift Supervision doesn’t feel it has over its 

thrifts. 

So I guess just following up on Mr. Frank’s question is that I bet 

that if each of us, members of this committee, went back to their 

States—because, Mr. Hawke, there are 50 Attorney Generals, each 

one of them elected by the people of their State. These are law enforcement officers and all 50 of them said unanimously, ‘‘What Mr. 

Hawke is doing and the OCC is doing is affecting our ability as 

State law enforcement officers from carrying out consumer protection laws in our State.’’ Pretty broad-based group of law enforcement officers. 

If the 50, I don’t know, Chicago police officers got together, I 

think you might think that was enough, but imagine New York and 

all of the police officers, LA, Chicago and all of our cities coming 

together to say, ‘‘Congress is doing something,’’ not in this case, we 

are not doing anything, ‘‘but a Federal institution is doing something that impairs.’’ Because it is a crime. I mean selling drugs on 

the corner is a crime, right? Mugging, rape is a crime. Murder is 

a crime. Predatory lending is a crime. So we should not somehow 

take these State Attorney Generals and these bank supervisors 

who are out there to fight crime. 

And so it surprised me that when I read your opening statement 

that you said, ‘‘The OCC’s mission is accomplished through three 

major programs: Supervise, charter and regulate.’’ And nothing is 

said here about consumers and protecting the consumers. It is supervise, charter and regulate. And it wasn’t until page 18 that I finally read something that spoke about consumer protection. 

So I don’t get it, Mr. Hawke, why we can’t sit down and bring 

elected officials, Attorney Generals and bank supervisors who are 

appointed, much as you were, the President nominated you, you 

were confirmed by the Senate. Guess what, these bank supervisors 

at State banks are nominated by their respective governors and 

that is State government. You know, we always said here, especially I heard it a lot from my colleagues from the other side is, 

‘‘Washington doesn’t have the answers.’’ They have the answers at 

the local level because they are closer to the people.’’

States’ rights. You know, in this case, I think that is why Sue 

Kelly and Mr. Paul and I are working together. We do agree that 

when it comes to fighting crime, even if you, Mr. Hawke, increased 

and you are not increasing the number of supervisors you have. According to your testimony, you are decreasing the number of people 

you have. You have it right here in your testimony, you are decreasing the number. But let’s say you were increasing it. Let’s say 

I am wrong and I misread your numbers. If you have got 2,000 people fighting crime, why wouldn’t you want 2,000 more, 1,500 more, 

7 more, 5 more, so when I am affected by crime and 911 doesn’t 

answer, right, which is OCC, 911, doesn’t answer, maybe somebody 

at the local level will take this under their charge and help us fight 

crime. 

23

Having said that, don’t you believe——

The CHAIRMAN. The gentleman’s time has expired. 

Mr. GUTIERREZ. Has it? 

The CHAIRMAN. It has indeed. 

Mr. GUTIERREZ. Oh, God. 

[Laughter.] 

Mr. GUTIERREZ. Aren’t you going to give the gentleman another 

minute to answer my question? 

The CHAIRMAN. You are just getting on a roll. 

Mr. GUTIERREZ. Well, don’t you believe we can work out a cooperative agreement sharing jurisdiction with the States, preserving 

their authority to protect consumer rights? I think Mr. Hawke 

should be given 5 minutes to answer that 5-minute question. 

[Laughter.] 

The CHAIRMAN. That was a 5-minute question, 5 minutes plus, 

but we will——

Mr. GUTIERREZ. Well, if I were still the ranking member and this 

were held in my subcommittee, I would be given a little more latitude. 

The CHAIRMAN. The gentleman may answer the 5-minute question. 

Mr. HAWKE. Thank you, Mr. Chairman. 

First of all, Mr. Gutierrez, our regulation does not preempt the 

arbitration clause in the Georgia law, so the concern that you have 

in that respect should be satisfied. Second, 911 does answer. It answers 70,000 times a year. We get 60,000 or 70,000 inquiries and 

complaints from customers of banks, many of which we refer back 

to other agencies or to the States. We have an extremely effective 

consumer complaint processing operation. Third, it is not us who 

is keeping State Attorney Generals out of national banks, it is Federal law that has been on the books for 140 years. 

For 140 years, there has been a statute that says that the OCC 

has exclusive visitorial powers against national banks. That is to 

examine, to come into them, to take enforcement actions against 

them. That has been virtually unchanged. There are some very 

minor exceptions to it, none of which permits State attorneys general to come into our banks. As a matter of fact, 10 years ago when 

Congress passed the Riegle-Neal Interstate Branching Act, it reinforced that principle by saying that in the interstate branching context, State consumer protection laws, to the extent that they are 

not preempted, will apply to national banks, and the OCC will be 

the exclusive enforcer of those laws against national banks. So we 

operate in a statutory framework in which State law enforcement 

officials take enforcement actions against State banks and others 

within their jurisdiction and we take enforcement actions against 

national banks. 

What is important here is not turf, not who takes enforcement 

actions against what institutions but how we arrive at coordination 

and a sharing of information. We have done that on many occasions. In the Providian case several years ago, we worked very effectively with local law enforcement authorities in California. We 

each worked within our own jurisdiction and we got $300 million 

in restitution against a bank while the State officials got restitution from the non-bank aspects of the company. 

24

I mentioned the Security Trust Company case where we worked 

effectively with the State of New York and the SEC. If we can arrive at a modus operandi with State law enforcement officials 

where we refer matters back and forth within one another jurisdictions, we can be much more effective than we can if we are jousting 

about who has got jurisdiction over whom. The ability to send 

banking——

Mr. GUTIERREZ. I think, Mr. Chairman, the answer is, yes, you 

are willing to work out a cooperative agreement with States Attorney Generals. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Texas, Mr. Hensarling? 

Mr. HENSARLING. Thank you, Mr. Chairman. I will table for the 

moment the whole question of the desirability of preemption, but 

since the question was raised by the other gentleman, can you give 

us in very precise detail the resources that the OCC has to perform 

the task of consumer protection? Is it fewer resources, is it more 

resources? What is it that the OCC has to engage in the exercise 

of consumer protection? 

Mr. HAWKE. We have 1,700 bank examiners, and we have 300 

bank examiners who are permanently and full-time on-site at our 

largest banks. We have over 100—and those 1,700 bank examiners 

work, many of them, in consumer compliance and consumer protection. We have 100 examiners who are dedicated entirely to consumer protection and compliance. We have several dozen attorneys 

in Washington and throughout the country who work on enforcement and compliance matters. And we have our Customer Assistance Group in Houston, which has 40 people working full-time, receiving tens of thousands of complaints and processing them very 

effectively and getting very good results for consumers. 

There has been a misapprehension that the regulations that we 

put out in January are somehow going to result in a massive 

switch of responsibilities and a huge in-flow of work to the OCC. 

That is categorically not the case. Those regulations did not change 

anything in the environment that would cause the OCC to face a 

resource shortage because new matters are going to be referred to 

us of the sort that we didn’t handle before. 

Mr. HENSARLING. Although the OCC is principally known as the 

regulator of very large, some of the Nation’s largest banks, in fact 

it is the community-based institutions, I guess, that make up the 

bulk of the banks that you regulate. There has obviously been a recent wave of consolidation. Should we in this committee be concerned about this increasing wave of consolidation as smaller banks 

appear to be gobbled up by megabanks? 

Mr. HAWKE. Let me address the first comment first. It is true 

that of the roughly 2,100 banks that we supervise, an enormous 

number of them are community banks. Probably 85 percent by 

number or over 90 percent by number of banks are under $1 billion 

in size of our banks, and half of those are under $100 million in 

size. So we have enormous concern about the health of the community banking system in the United States, and the great bulk of our 

people are devoted to the examination and supervision of community banks. 

25

In terms of mergers and consolidation, I think most of those acquisitions have not involved smaller community banks. The big attention-getting acquisitions have involved mid-size and large 

banks, and I think in many cases community banks have been the 

beneficiaries of some of those transactions. Because when a merger 

occurs it generally opens up new opportunities for community 

banks to demonstrate how much more effectively they can serve 

people in their communities than branches of large banks that are 

headquartered in far distant cities. 

Mr. HENSARLING. One of the goals of Gramm-Leach-Bliley, I believe, was the goal of bringing down barriers to entry so that there 

would be increased competition in the banking arena, greater 

choices and hopefully the reduction of cost for consumers. Now that 

we have had several years of history, do you have any observations 

as to what extent the law has been working to indeed eliminate 

and lower barriers of entry? 

Mr. HAWKE. Well, Gramm-Leach-Bliley certainly did lower some 

of the barriers. I think it is interesting that many of the opportunities that Gramm-Leach-Bliley opened up have not been taken advantage of. We don’t see much interest in banking organizations, 

for example, getting into insurance underwriting. There are a few, 

but that has not been a big deal. And we haven’t seen much in the 

way of investment banking firms acquiring banks. There is greater 

latitude for banks under Gramm-Leach-Bliley to engage in investment banking activities, but many of them were able to do that to 

a great extent even before Gramm-Leach-Bliley. 

So while I would say that Gramm-Leach-Bliley potentially 

opened up opportunities, they haven’t been taken advantage of to 

a great extent. 

Mr. HENSARLING. My time has expired. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentle lady from New York, Ms. Velazquez? 

Ms. VELAZQUEZ. I am supportive of the OCC’s tough actions on 

national bank engaging payday lending, including the issuance of 

cease and desist orders and monetary penalties. However, I am 

concerned that some banks that may be looking in the payday lending business will look to other charter types. Do you believe that 

banks are actively gaming the regulatory structure to be able to remain in the payday lending business? 

Mr. HAWKE. I have heard indications that some of the payday 

lenders that we essentially forced out of the national banking system have looked to other banks, and I know the FDIC is concerned 

that payday lenders may be looking to link up with banks that 

they supervise. 

Ms. VELAZQUEZ. Can you tell me what can Congress do to further 

limit the ability of banks to establish payday lending affiliates? 

Mr. HAWKE. Well, the problem has not been so much banks establishing the affiliates, it started with the payday lenders looking 

for a way to evade State laws by linking up with national banks 

and holding themselves out as agents for national banks under the 

preemption doctrine. We thought that was an abuse of preemption, 

and that was one of the principal reasons that we came down hard 

on those four national banks that had allowed their charters essenVerDate 0ct 09 2002 15:36 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 G:\DOCS\94902.TXT FIN1 PsN: MICAH
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tially to be rented out to payday lenders. That was a clear misuse 

of preemption. 

Ms. VELAZQUEZ. Many financial institutions rely on foreign companies to process customer data and staff call centers, you know, 

outsourcing of jobs. Gramm-Leach-Bliley required Federal banking 

agencies to set forth customer safeguarding standards, and the 

OCC has provided specific guidance in this area. How does the 

OCC standards protect customer information that is stored abroad? 

Mr. HAWKE. That is a very important question and one that we 

are presently very much concerned about. As banks outsource data 

processing activities, for example, that involve confidential customer information, we want to make very sure that the same kinds 

of protections apply that would apply if the activity was conducted 

by the bank itself. 

Ms. VELAZQUEZ. Does the OCC examine foreign facilities to ensure that they meet the OCC’s guidelines, and how often are such 

examinations carried out? And are such examinations conducted by 

OCC staff? 

Mr. HAWKE. I may be wrong about this, but I don’t think we 

have occasion to try to examine overseas a foreign vendor that is 

providing services. If I am wrong about that, we will correct the 

record. There is in U.S. law authority for us to examine providers 

of services——

Ms. VELAZQUEZ. So what do you intend to do? 

Mr. HAWKE. Well, I can’t tell you—in all honesty, I can’t tell you 

exactly where that stands. It is an issue that is being considered 

by our supervisory people right now in the context of the concerns 

about the outsourcing of operations that involve confidential customer information. 

Ms. VELAZQUEZ. The OCC prohibits national banks from making 

home loans based predominantly on the foreclosure value of the 

collateral. It does not, however, address the more common practices 

of high fees, prepayment penalties, mandatory arbitration or loan 

flipping. As a result, the OCC standard may not be strong enough 

as lending institutions that charge excessive fees may strip away 

an owner’s equity but may not actually result in foreclosure. Under 

the OCC standard, it is my understanding that these institutions 

will not be penalized for their actions. Given these potential shortcomings, can you comment on how the OCC’s rules and regulations 

protect consumers against predatory lending practices? 

Mr. HAWKE. Yes, I would be happy to. First of all, the underwriting standard that you described is, as I said earlier, I think lies 

at the heart of predatory lending. Everybody has got their own definition of predatory lending, but the essence of predatory lending, 

I believe, is the unscrupulous actions of non-bank mortgage originators who target the equity in people’s homes and come and push 

credit out at very high prices that strip the fees out in the equity 

of the house. We have seen evidence of that not in the banking system but in the non-banking system. That is why we put such heavy 

emphasis on the underwriting standard. The underwriting standard is something that bank examiners can look at and deal with. 

Now, as far as other practices of the sort that you mentioned, we 

have at the OCC pioneered the use of section 5 of the Federal 

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27

tices. And we have taken action against abusive practices of a number of sorts that don’t involve predatory lending as such but that 

are unfair and deceptive. And we can go after situations where 

under all the circumstances we think a bank is engaging in unfair 

and deceptive practices. 

The CHAIRMAN. The gentle lady’s time has expired. 

The gentleman from New Jersey, Mr. Garrett? 

Mr. GARRETT. Thank you and thank you for being with us today. 

I am going to do the odd thing and agree completely with all the 

statements made from the other side of the aisle with regard to the 

preemption issue. That troubles me as well. That troubles me from 

the last hearing we had when Sue Kelly held a hearing. I think 

back to where we are today comes from where our founding fathers 

established this idea that there was—they were suspicious of the 

tyranny of a central government and a central bureaucracy. Always 

for a good cause is what the Federal Government may be doing but 

with over zealousness it may infringe upon the interests of the people back at home. The people back at home are closer to the issues. 

They are supposed to be the engines of innovation, as our founders 

had intended it, and now we are going to be, as far as I can see, 

stripping it of that right. 

The questions are the same that I had back then, and I haven’t 

heard either from scanning your testimony or hearing what you 

have said so far what is the harm that we are trying to address 

here? What is the exigency, what is the immediacy that we have 

to go forward at this point? What was the immediacy that we had 

to go forward or you have to go forward with the regulations when 

Sue Kelly and other members—I don’t know if I was on that letter 

or not—but other members signed on to a letter asking for holding 

back on those regulations coming forward at that time? What is the 

exigency of going forward today? And why is it not the purview of 

Congress and not an agency to establish in statute as opposed to 

regulation? 

Mr. HAWKE. Well, let me say, first of all, there is obviously a difference of view on this. We don’t think we did anything radically 

new. We didn’t expand the standards of preemption, we didn’t expand the areas covered by preemption beyond what the courts have 

repeatedly said or what had been in earlier interpretations and rulings that we put out or that are embodied in the OTS regulations. 

I think there has been a lot of exaggeration about the effect of our 

regulations. All we did was to codify principles that are long-standing. They go back well over 100 years. We did not do anything new. 

And one example of that is when we preempted the Georgia antipredatory lending law, the Attorney General of Georgia was asked 

if he could take us to court and he reviewed the precedence and 

said that he didn’t think there was a chance of beating us in court 

on that issue. What we did was completely in conformity with law, 

and it did not change the ground rules at all. 

Preemption is a constitutional doctrine and whether we codified 

the preemption rulings in the regulation or not, these issues were 

going to come up in court. They have been coming up in court in 

wholesale numbers. We have had scores of litigations over the last 

decade involving issues of preemption. Our banks are faced with 

the uncertainty of litigation as they move into new products and 

28

new markets, and we have been asked on dozens of occasions to 

give interpretations about the applicability of State laws, and the 

reason we put out our regulation is to try to bring some predictability and clarity to long-standing doctrines. 

We did not intend to and we did not in fact change the basic 

rules of preemption or do anything remotely resembling what has 

been attributed to us. So I know there are differences of view on 

that. What we did has been, I think, grossly mischaracterized by 

many people, but what we did was completely in conformity with 

long-standing law. 

Mr. GARRETT. You are correct, it is a constitutional issue, the 

issue of preemption, I guess, where some of us said that if the 

courts are making those determinations out there, that there 

should be or should not be in the certain areas, as defined—as the 

courts hear it, then some of us would feel that that final arbiter 

of the decision as to whether you are going to go forward and enforce the preemption should be a congressional decision as opposed 

to a regulatory. 

I think I have a little bit of time just to go to one other point 

that was raised, and that is the issue of the confidentiality or the 

privacy of the information going overseas. And you gave an answer 

on it where you said you really couldn’t speak to it exactly, and I 

don’t want to put words in your mouth. Is that because no decision 

has been made, that it is still in the process, what you are saying, 

as far as dealing with it, or just where are we in the process of 

coming up to it, and when will we have a resolution to that part? 

Mr. HAWKE. What I meant to say was I just don’t have the information at hand. We will be happy to follow up with a supplemental 

submission. I know this is an issue that our supervisory people 

have been addressing. The standards that we have applied to our 

banks domestically with respect to protection of confidential information will apply, do apply to internationally outsourced activities. 

What I was unable to address specifically is exactly what our supervisory people are doing with respect to the examination of vendors overseas who are engaged in that. And this is a matter that 

is being discussed on an interagency basis. 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. GARRETT. And if you could provide us with that information. 

The CHAIRMAN. Without objection. 

The gentleman from New York, Mr. Crowley? 

Mr. CROWLEY. Thank the chairman, and thank you, Comptroller, 

for being here today as well. Regarding the national standards for 

combating predatory lending, one issue by OCC prohibits national 

banks from engaging in unfair or deceptive lending practices. As 

FDC governs these issues, there is concern that OCC will not have 

the authority to identify or enforce any unfair or deceptive practices. Can you explain how OCC plans to identify, enforce and punish those national banks or their operating subsidiaries that engage in unfair and deceptive lending practices? 

Mr. HAWKE. Well, we do have the authority and until we developed it, the concept has sort of been laying dormant whether we 

could enforce section 5 of the Federal Trade Commission Act. That 

is now very well-established and accepted by our sister agencies as 

well. We have instituted a number of actions against banks using 

29

that authority under section 5 of the Federal Trade Commission 

Act to remedy unfair and deceptive practices. 

Information comes to us through a variety of sources: Referrals 

from State law enforcement, our examination process and our Customer Assistance Group and just through the way it comes to the 

Federal Trade Commission itself. So I think we have plenty of resources to use that authority, and we see it as a very potent weapon in our arsenal when we deal with abusive practices at our 

banks. 

Mr. CROWLEY. Thank you for that. Comptroller, there are been 

a great deal of concern expressed to my office and to myself among 

the State regulators, such as Attorney General Spitzer from my 

State of New York, that the new preemption codifying the OCC’s 

recent regulations will lead to weaker protections for consumers. 

My question deals with how the OCC will address that concern, 

and in answering the question if you can make reference to the 

First Tennessee case that Mr. Spitzer made example of. And in 

viewing that example, how does the OCC plan to rectify that plaintiff, particularly, and how do you plan to proactively ensure that 

that type of situation doesn’t happen again? What type of penalty 

do you have in mind for First Tennessee if it is decided they committed unfair and abusive lending practices? And, finally, how do 

you plan to conduct the outreach to State regulators like Mr. 

Spitzer to address the concerns like the one Mr. Spitzer put forward in his lawsuit? 

Mr. HAWKE. Well, I am delighted to answer that because I think 

this goes to the heart of how we cooperate with State law enforcement officials. I want to be a little bit circumspect in discussing a 

pending case, but we had a very, very similar case to the First Tennessee-First Horizon matter come up last year in another bank, in 

another State. It came into our Customer Assistance Group, and 

one of the people at the Customer Assistance Group called the examiner in charge at the bank that was having the problem. The examiner in charge walked down the hall to the consumer compliance 

person and said, ‘‘Get this fixed.’’ And it was fixed overnight and 

immediately. 

Virtually the same set of facts is involved in the First Horizon 

case. Attorney General Spitzer is using this as a vehicle for trying 

to establish a principle, but as soon as we learned about the complaint, which we did when he filed the lawsuit, they didn’t come 

to us with a complaint, but as soon as we found out we called the 

bank and said, ‘‘Get this fixed,’’ and it was fixed. The customer has 

been made whole, the problem is solved and really the case has 

really no vitality left to it. We have not taken any penalty action 

against the bank. This appeared to be the case of a bookkeeping 

foul-up at the bank and a rather obtuse reaction by some lowerlevel bank people when the matter was brought to their attention. 

Mr. CROWLEY. In terms of the relationship between yourself, the 

offices and Attorney Generals, how will that work? 

Mr. HAWKE. Well, I——

Mr. CROWLEY. See, I noticed in your answer there a little bit, I 

won’t say resentment, but——

Mr. HAWKE. No, not at all. I had a——

Mr. CROWLEY. maybe a little hesitation between yourself——

30

Mr. HAWKE.——conversation with the Attorney General just a 

couple of days ago and emphasized the importance of our being 

able to work together as we did in the Security Trust case. He said 

he would like to come and visit and I look forward to that. 

A year ago, we proposed to the State AGs that we enter into a 

memorandum of understanding for information sharing exactly like 

we have with the State insurance commissioners. And so far only 

one State has picked us up on that—the State of Maine. But we 

remain very hospitable to working out a modus operandi with the 

States that will allow us to share information and coordinate and 

cooperate on enforcement activities rather than trip over each other’s feet, as we race to take competitive actions. 

Mr. CROWLEY. Thank you, yield back. 

The CHAIRMAN. Mr. Murphy? 

Mr. MURPHY. Thank you, Mr. Chairman. I want to shift gears 

and go another direction and talk about the Basel court issues, as 

complex as they are. But are the regulators, you, the Fed, the 

FDIC, OTS, any closer to agreement on how to handle the operational risk issues in Pillar 2? 

Mr. HAWKE. We actually have been together on that issue for 

quite some time. I think there was a perception that there was a 

deep gulf between us, and that largely stemmed from the fact that 

I alone among all members of the Basel Committee was arguing 

that operational risk should be treated under Pillar 2 rather than 

Pillar 1. I got nowhere with that argument and the Committee 

moved ahead to include operational risk under Pillar 1. We then 

spearheaded the development of what is called the advanced measurement approach under operational risk, and the Fed has joined 

with us and the FDIC. And we believe that is a very effective way 

of dealing with operational risk, and we are all together on that 

now. 

Mr. MURPHY. There are still some things, though. The Federal 

regulators have undertaken efforts to ensure that banks have contingency plans to deal with these unforeseen loss issues, but they 

are costly and will result in pure losses in the event of a disaster. 

But Basel II requires an addition of mandatory regulatory capital 

charge to cover operational risk losses. Doesn’t this result in some 

double charge of banks seeking to comply with Basel II and the 

mandates of the Federal regulators? 

Mr. HAWKE. Well, I think the Committee has been cautious to 

try to avoid double counting and double imposition of capital. The 

operational risk rules should not result in double counting of capital as between operational risk and credit risk, although I suppose 

there are some opportunities for spillover. 

Operational risk does exist, and we have seen examples of it, and 

our banks themselves hold capital against operational risk. So I 

think the basic concept of capital against operational risk is a 

sound one. The big question is how we measure it and how we calculate that capital, and I think we have made tremendous advances in improving the Basel proposal on that score. 

Mr. MURPHY. Thank you. 

That is all I have, Mr. Chairman. 

Mr. BACHUS. [Presiding.] Who is next? Okay. I am sorry. We are 

going in order of, I guess, who first arrived, and I have Mr. Scott 

31

next. The order on this side, just so as long as everybody will know, 

I have got Mr. Scott, Mr. Bell, Mr. Watt, Ms. Carson, Lee, Emanuel, Israel, Maloney, Lucas, Sherman, Waters, Moore, Miller and 

Clay. 

Mr. SCOTT. Mr. Hawke, why has the OCC not responded and answered the letter from my banking commissioner, Mr. Sorrell, of 

August 21 regarding the preemption of the Georgia Fair Lending 

Act? It seems very strange that you took 6 months to go section by 

section and preempt the Georgia Fair Lending Act, and yet for 7 

months you would not respond to the banking regulator’s questions 

on issues regarding that issue. Why is that? 

Mr. HAWKE. Mr. Scott, you raise an entirely appropriate issue. 

The first I learned that we had not answered the commissioner’s 

letter was when the letter came in just a couple weeks ago, and 

I sent him a note back with profuse apologies, and I was chagrined 

upon that we had not answered that. It was not the way we usually do business. It was an unfortunately glitch and I am very sorry 

that occurred. That response should go out by the end of this week. 

And I very much regret that we didn’t meet our usual response 

time. 

Mr. SCOTT. But 7 months is a long time. There is a purposeful 

nature to 7 months. And it might be important to note that that 

March 9 letter was cc’d to me and other members of the Georgia 

delegation which might have prompted that response. What I 

would like and humbly ask of you, as we have this trouble with letters and that in the previous question and answer period with the 

gentleman from New York you mentioned that you had a conversation with the State regulator of New York, is that too much to ask 

that you could pick up the phone and to call our commissioner and 

have a two-way conversation much as you have done with other 

States, especially with the fact that our law has been preempted? 

Could you do that? 

Mr. HAWKE. Absolutely, and I will. 

Mr. SCOTT. Would you like to have his phone number? Could I 

give that to you? 

Mr. HAWKE. I have got a crack staff who will find his phone 

number. 

Mr. SCOTT. Well, please do that because that is very important 

to me. I am the only Georgia congressman, Democrat or Republic, 

serving on the Financial Services Committee, and my people in 

Georgia look to me to raise the issues and most importantly to get 

my State the respect that they deserve. And it would go a long way 

to helping that happen if you would be kind enough to pick up the 

phone and talk to Mr. Sorrell and to ask and answer questions and 

have that dialogue. 

Mr. HAWKE. I would be happy to do that, and I couldn’t agree 

more about the very unfortunate lapse in our process. I am deeply 

apologetic and I appreciate you raising it. 

Mr. SCOTT. Very good. Let me ask you a second question on a 

broader issue. On the broader rule that you adopted on February 

12, 2004, Mr. Hawke, let me ask you why did you decide to adopt 

your rule without a public debate on the issue before Congress 

since the rule was rigorously and unanimously opposed by the Nation’s governors, State legislators, State attorneys general, State 

32

bank supervisors and consumer organizations, and their comments 

urged public debate and congressional review? 

Mr. HAWKE. Well, that is a question that we have addressed, and 

I want to start by saying emphatically that we intended no disrespect for this committee or its members. We received views on all 

sides of this issue. We had gone through an extensive rulemaking 

process in which comments were received a wide variety of commentators. We believed that the principles that were embodied in 

the regulation were not new despite the mischaracterization of the 

rule, that they were embodied in more than a century of precedence. We were seeing uncertainty in the marketplace, as I mentioned before, and that was impacting our banks’ ability to serve 

customers. 

We saw that in some cases these anti-predatory lending laws 

were impacting on the ability of our banks to provide good 

subprime credit in these markets. The secondary market was constricting and banks were moving out of markets. As I mentioned 

earlier, we were facing a high volume of litigation and inquiries 

about these preemption issues, and we felt that our banks needed 

guidance and that we needed to move ahead with that guidance. 

And, finally, we thought that it was important that the predatory 

lending standard that we announced in the regulation go into effect 

and that that be out there so that banks would have—and I appreciate that people think we didn’t go far enough with that—but that 

predatory lending standard that is in the regulation is something 

that nobody else has done and no other State or Federal regulators 

have done, and we believed it was important to get that out there 

and get that into effect. 

Mr. SCOTT. But you can see why some of us in Congress feel that 

you are stepping on our bailiwick here. It is our responsibility to 

make the laws, to legislate. It is yours to regulate, and this kind 

of action certainly causes alarm on our side. 

Let me ask you——

Mr. BACHUS. Thank you, Mr. Scott. Actually, I think you are 

probably about 2 minutes over. 

Mr. Hawke, as you know, some of your critics have charged that 

the OCC was not being sufficiently responsive to consumer complaints about unfair or abusive practices at national banks and focusing particularly on predatory lending practices. Walk us 

through the process that the OCC follows when it receives a complaint that one of its institutions is engaged in possibly unlawful 

conduct or has otherwise mistreated one of its customers. 

Mr. HAWKE. Well, complaints come in from a variety of sources. 

We get complaints that are discovered in the examination process, 

and we get a very high volume of complaints and inquiries that 

come in through our Customer Assistance Group—70,000 a year. 

Many of those don’t relate to national banks and we kind of pawn 

those out to the responsible agencies. But that is one way that we 

learn about practices, and when complaints do come in the bank 

is contacted, the bank is asked for an explanation of its conduct, 

and if we find that the bank has engaged in abusive practices, the 

matter will get referred over to our supervisory staff, and it could 

form the basis of enforcement action. That is the way many of 

these things get started. 

33

Others come up in the routine examination process. We will find 

that a bank is offering a product or engaging in an activity that 

reflects abusive practices, and we will take action against them. We 

have found in the area of credit cards, secured credit cards and like 

products that some banks are really engaging in unfair and deceptive practices, not predatory lending the way I would describe it, 

and we go after them. We have had a good record of getting judgments against them. 

Mr. BACHUS. Have you received any complaints that national 

banks are engaged in predatory lending practices? 

Mr. HAWKE. We have no evidence that predatory lending is a 

problem in the national banking system. Indeed, there are repeated 

statements by all of the State attorneys general that predatory 

lending is not a problem of regulated financial institutions and 

their subsidiaries, but it is a problem that exists in the unregulated 

financial community, the mortgage brokers and the unregulated 

originators of mortgages. The State Attorneys General have stated 

emphatically that they have not engaged in enforcement activities 

against banks and their subsidiaries on predatory lending, they 

have no evidence of it, and we have invited referrals from consumer groups and from State law enforcement people on predatory 

practices at national banks. 

I should just add, Mr. Bachus, that last year we put out I think 

what is the most expensive advisory on predatory lending that any 

agency of the government, Federal or State, has put out. And I 

really commend those to the reading of anybody who is interested 

in predatory——

Mr. BACHUS. I am going to take your word for it till I hear otherwise. You have mentioned credit card complaints about credit 

cards. Is that the major area of complaints? 

Mr. HAWKE. Since most of the credit card operations in the country are conducted in national banks, we do become the recipient of 

complaints from credit card customers. 

Mr. BACHUS. Are those all funneled through the Customer Assistance Group? 

Mr. HAWKE. Many of them are. 

Mr. BACHUS. Some of them aren’t, though? 

Mr. HAWKE. Well, some we pick up in the examination process 

directly, but many of them come in through the Customer Assistance Group. And if find an unusual number of complaints about a 

particular institution, we will feed that back into the examination 

process to find out what is going on. And we did in one case a few 

years ago we noticed a spike up in complaints about a particular 

institution, and we went back to the institution and said, ‘‘What is 

going on?’’ The management of the institution didn’t even know 

that they had a problem, and we were able to get that fixed in a 

way that was very beneficial not only to the customers but to the 

management itself. 

Mr. BACHUS. What I am hearing, and let me ask you if you are 

hearing the same thing, I am hearing constituents complain that 

they will get their credit card bill and from the time they get it to 

the time they have to pay it is not 30 days, it is not 25 days, it 

is 14 days or 17 days or the cycle’s been shortened. Are you getting 

a lot of complaints of that nature? 

34

Mr. HAWKE. We have gotten complaints of that sort, and those 

issues have been addressed on an interagency basis in our account 

management guidance, a number of practices of that sort. 

Mr. BACHUS. Have been stopped? 

Mr. HAWKE. I can’t represent to you that they have all been 

stopped, but we put out pretty strong guidance to our credit card 

banks to avoid abusive practices of that sort. 

Mr. BACHUS. Has any enforcement action been taken against 

banks who may have been engaged in——

Mr. HAWKE. I am not aware of any enforcement action as such 

that we have taken against them, but in some cases it is like—our 

objective is to make clear what the ground rules are for our credit 

card banks. There are problems that are reflected in these consumer complaints, and we have had meetings with our credit card 

banks and told them that they have got to get these things fixed, 

because, among other things, they are inviting additional regulatory legislation that will impose a remedy on them that they 

ought to be concerned about. 

Mr. BACHUS. And I can tell you that that is some of the most enraged calls that I receive that are received to me from other members of, say, the Alabama delegation or what they consider an arbitrarily short period to respond to the credit card bill coming in. 

And I would like maybe if you could supply me with what those 

guidelines are. 

Mr. HAWKE. We would be happy to. 

Mr. BACHUS. I think my time is—well, actually, is the light still 

on? Okay. All right. 

Mr. Watt? 

Mr. WATT. Thank you, Mr. Chairman. 

Welcome, Mr. Hawke. I would have to say that I have listened 

very intently to your testimony this morning in very great detail 

and come away very disappointed in several respects. First is in 

your failure to acknowledge that the OCC has overstepped even in 

the face of all of the opinion of this committee that you have in fact 

overstepped. Second, in your insistence that what the OCC did was 

not a dramatic change even in the face of everybody in the industry 

saying that what you did was a dramatic change. 

In your, to me, inconsistent positions that it was absolutely imperative that your predatory lending standards be announced and 

it be gotten into, that these standards be out there, yet the other 

side saying that everybody is saying that there is no problem of 

predatory lending with national banks, I am perplexed about that. 

Your statement that banks were withdrawing from markets yet 

doesn’t seem to square with this notion that there was no problem 

of predatory lending. 

And then your most recent statement, something about regulatory legislation, which to me—well, I guess it happens all the 

time that there is regulatory legislation. I think the problem that 

we are having on this committee is that you are setting standards 

here that we believe are the prerogative of Congress to set and that 

you are misapplying the standards that have been set. 

I have looked at the wording of the Barnett case that set a standard which says prevent or significantly interfere with the national 

banks exercise of its powers. That is the language that the case law 

35

uses. The rule that you put out says obstruct, impair or condition 

a national bank’s ability to fully exercise its Federally authorized 

powers. Do you read those two statements, the legal standard that 

the court set and the standard that the OCC set in its rule, to be 

one in the same? 

Mr. HAWKE. When you look at the whole string of Supreme Court 

and other Federal court precedence relating to preemption, and 

they go back well over 100 years, the language in our regulation 

reflects what has been said in those cases. 

Mr. WATT. So you are saying that the language that I just read 

that those two set of languages say exactly the same thing? 

Mr. HAWKE. Well, I think when you look at the Barnett case as 

a whole, it does talk about conditioning the exercise of powers. But 

this is an issue that goes back to——

Mr. WATT. Well, I understand that it goes back a long time, but 

I mean I think what you have done is—maybe all you were doing 

was codifying your thinking about it, but in the process of codifying 

it by regulatory standards you have certainly hit a bunch of nerves 

that nobody thought you were regulating in. Let me just point up 

one of those that is troubling to me. 

One of the areas that your regulation says you are going to deal 

with is regulating abandoned or dormant accounts. Now, North 

Carolina has an escheat laws. Does the OCC have some kind of escheat law? 

Mr. HAWKE. We did not affect escheat laws at all. 

Mr. WATT. Well, what does it mean when you say regulating 

abandoned or dormant accounts? 

Mr. HAWKE. Let me explain, Mr. Watt. There are two Supreme 

Court cases that deal with escheat laws, and the law is very clear, 

that state escheat laws apply at the national banks and are not 

preempted so long as they provide a due process opportunity for 

customer to raise—for the owners to raise claims. 

Mr. WATT. So does that not condition a national bank’s ability to 

act or does it significantly interfere with it? I mean which one of 

those does it do? I mean——

Mr. HAWKE. We made clear in the regulation that—the regulation simply reflects the Supreme Court precedent. Where there is 

no due process provided in the State law, it is preempted. That is 

what our regulation says, that is what the Supreme Court has said. 

Mr. WATT. No due process in predatory lending law when we 

don’t really have a predatory lending standard at the Federal level, 

and you have got to write a regulation that tells what the standard 

is? 

Mr. BACHUS. I think he is talking about the escheat laws. 

Mr. HAWKE. I am just talking about escheat laws. 

Mr. WATT. Well, I am talking about the whole range of laws 

here. I am trying to figure out where it is in this context that the 

OCC feels like it has authority to start articulating what the law 

is at the Federal level when there is no law? 

Mr. HAWKE. Well, Mr. Watt, I have taken an oath to support and 

defend the Constitution of the United States, just as every elected 

representative has, and I have to apply our best judgment about 

what the Constitution provides in the area preemption. These are 

constitutional——

36

Mr. WATT. So when the Congress tells you that you have overstepped and you have applied a standard that is different than 

what the Congress says is the standard, you are going to say, 

‘‘Well, this is my standard, and I haven’t overstepped. I am not 

doing anything dramatically different than has been my prerogative all along.’’ Who is the OCC? 

Mr. HAWKE. Well, I firmly believe that to be the case, that we 

have not done anything different, that we have not overstepped our 

bounds. We have been involved in dozens of pieces of litigation involving preemption issues over the years. We consistently win 

these cases. Our views on preemption are constantly reinforce by 

the courts. Congress, obviously, can change any of those rules, and 

I think that the States recognize that preemption is a well-established doctrine. 

When the Georgia legislature passed the Georgia preemption 

anti-predatory lending law, they had a provision in it saying that 

if this law is preempted for national banks, it will also fall for State 

banks. And they were expecting, they were anticipating that the 

normal doctrine of preemption would preempt the applicability of 

that law for national banks. And the State Attorney General said 

that he didn’t see any prospect of overturning our judgment on that 

score. So I don’t think this was really a close issue in terms of 

whether we were reading the existing law correctly. 

Mr. BACHUS. Thank you. 

Ms. Kelly? 

Mrs. KELLY. Thank you. First, I want to thank Mr. Oxley for his 

recognition of how important this issue is to the American people 

and for bringing this issue to the attention of the full committee. 

As you know, several weeks ago, this committee passed a resolution that expressed serious concerns with the rules the OCC had 

finalized. 

And, Mr. Hawke, I want to thank you for fulfilling your promise 

to me that you would appear here. I thank you for appearing here 

today. 

Mr. Hawke, I recently read an article in the American Banker 

in which you made some very dismissive remarks about the New 

York State Attorney General and banking superintendent relating 

to their concerns with these rules that you finalized on January 7. 

Your comments and what appears to be a dismissive attitude towards the concerns that we have in the banking structures of New 

York are not constructive and they make it very difficult for some 

members of this committee to have confidence in your stewardship 

of the OCC with regard to these regulations—one of the reasons 

why I have asked today for a GAO examination of the implications 

of your regulations on consumer protections as well as the process 

by which you arrived at these rules. 

I hope that as we move forward in reviewing the OCC activities, 

you will demonstrate a greater recognition of the concerns expressed by the officials in my State and in these other States, as 

you have heard today, who genuinely believe that these regulations 

will have a negative impact on consumer protections and on the 

dual banking system. 

Mr. Hawke, I would like you to answer a few questions and I 

want numbers only. No discussion because these are very simple 

37

questions. How many full-time people does the OCC have specifically devoted to customer service? 

Mr. HAWKE. We have got about 40 people who——

Mrs. KELLY. Full-time? 

Mr. HAWKE. Forty full-time people who man our Customer Assistance Group in Houston, but that is not the only way we deal 

with it. 

Mrs. KELLY. I didn’t ask that. I asked for a number, sir. How 

many full-time people work on regulatory work? 

Mr. BACHUS. Ms. Kelly, I think he is saying that he didn’t know. 

That is not the total answer to the——

Mrs. KELLY. Well, I know what he is going to say, and so I have 

already discussed it with him and it is in his testimony if you look 

at the graphs. 

Mr. BACHUS. I am just saying that he may—in fairness to the 

Comptroller——

Mrs. KELLY. Well, are you going to give me more time since you 

are taking my time? 

Mr. BACHUS. I will. I will, Ms. Kelly, but what I am saying I 

think he was saying that is not all the people. I don’t know if you 

were asking about——

Mrs. KELLY. Fine. Mr. Hawke, finish your answer. 

Mr. HAWKE. My answer was that we have 40 full-time people at 

Customer Assistance Group who are the initial in-take for tens of 

thousands of customer complaints, and we have 1,700 examiners 

and 100 examiners who are devoted to consumer compliance. 

Mrs. KELLY. Well, quite frankly, I asked you about customer 

service only, so you didn’t need to amplify the answer. 

Mr. HAWKE. They all deal with the resolution of customer——

Mrs. KELLY. I am only interested in what you have dedicated 

solely full-time to customer service. That is 40 people if I understood your answer. Now, how many people——

Mr. BACHUS. Ms. Kelly, he actually said that some of the other 

staff is——

Mrs. KELLY. I understand that, but I am trying to get at my next 

question, which is how many full-time people work on the regulatory work, just the regulatory work? 

Mr. HAWKE. Well, I am not sure how to characterize that, Ms. 

Kelly. The——

Mrs. KELLY. Well, just give—how many people are in the regulatory work? 

Mr. HAWKE. Lawyers who work on regulatory matters, my Chief 

Counsel advises me that we have got 20 lawyers who work on regulatory matters. 

Mrs. KELLY. Thank you, Julie. How many people do you have 

working solely in enforcement? 

Mr. HAWKE. We have got 100 compliance examiners who specialize in assuring compliance with consumer protection laws, the 

several dozen consumer protection laws that we have, and we have 

probably got a couple of dozen lawyers in Washington and throughout the system that work on enforcement and compliance cases. 

Mrs. KELLY. I am going to wait for Julie to hand you that paper. 

Mr. HAWKE. Well, Julie tells me I understated it. We have got 

25 lawyers in Washington in enforcement and compliance, 25 more 

38

in the districts and 10 others in consumer and community relations. 

Mrs. KELLY. Okay. So it is 25 in D.C., 25 in the districts, and 

how many more? 

Mr. HAWKE. Ten. 

Mrs. KELLY. Ten, 10 more. Okay. What was the specific caseload 

for each full-time examiner last year? 

Mr. HAWKE. I will be happy to provide that, Mrs. Kelly, in a follow-up. I don’t have that number at my fingertips. 

Mrs. KELLY. With this change, what will be the specific caseload 

for each full-time examiner this year? 

Mr. HAWKE. Mrs. Kelly, there will be no change as a result of 

the regulations that we put out. And that is one of the great misconceptions about what we did. The regulations, despite the difference of views, and I respect the fact that our colleagues in the 

States have different views on this, our regulations codified the 

long-standing existing rules. They will not result in a significant—

in any change in our workload. I think that is a specious argument 

that is being made by those who have an interest in attacking our 

position on preemption. 

Mrs. KELLY. I would be interested, sir, in the number, and if you 

would break it down in terms of who is detailed to the national 

banks and who is detailed to operating subsidiaries. I would also 

like to know what the specific caseload is for every full-time employee assigned to your Customer Assistance Group. 

Mr. HAWKE. We will be happy to provide that information. 

Mrs. KELLY. I think that I may have an answer for that. I have 

an article here from the American Banker quoting Sheila Bair, a 

former Treasury Department official who is now a management 

professor at the University of Massachusetts. She states, and she 

may not be correct, which is why I was trying to find out if you 

had a different figure, she said the study says—her study says that 

the OCC has 921 consumer complaints for every full-time employee 

assigned to its Customer Assistance Group. I just didn’t know what 

that number was that you have assigned. She also points out that 

the OCC has very high workloads for complaint processing. She 

says, and I quote, I think that does underscore that the OCC really 

needs to beef up their complaint-handling ability. 

My concern here is we need to make sure that the people who 

are involved in our banking system, their customers, have answers 

to their questions and have their complaints handled in a timely 

manner. She quotes in the study that the FDIC has 111 complaints 

per person involved, and the Federal Reserve has 124. At 921 consumer complaints for every full-time employee, that is a lot. I don’t 

know what number she is using there. I would like you to answer 

if you do know what the number she is using, and if you don’t, if 

you can get back to me, I would appreciate it. 

Mr. HAWKE. I would be happy to answer that question, because 

as much as I love Sheila Bair, she really does not know what she 

is talking about here. The numbers that she gives are relatively accurate. I am willing to accept that they are accurate. But she takes 

no account of the efficiency of these operations. If you take the 111 

or 124 complaints per FTE that the Fed and the FDIC have, that 

works out to about 1 complaint every 2 days. That is what their 

39

ratio is. And ours works out to about four complaints a day. So the 

people that we have processing cases in our Customer Assistance 

Group handle, on average, about four complaints a day, based on 

the ratio of complaints to full-time staff. 

You can’t simply take bare bones numbers like that and make 

conclusions about the quality of workloads or the need for more 

people. So I think it was gratuitous of her and uninformed to make 

the conclusion that she did. We constantly review the workload in 

our Customer Assistance Group. We review it in our budget process, we are presently looking at it. If the workload down there appears that we need more people, we will devote whatever resources 

are necessary to handle the workload. We have not had workload 

complaints about that operation. It has a highly efficient operation, 

it is highly automated, we have put technology to great use down 

there. 

I think it is a world-class operation that ought to be a model for 

customer assistance groups any place, and we have invited our colleagues at the States to come down and look at it. Taking bare 

bones numbers of the sort that Sheila did and drawing conclusions 

about workloads is totally inaccurate and uninformed, and I am 

sorry that she jumped to that conclusion. 

Mr. BACHUS. Thank you. 

Mrs. KELLY. I think I am entitled to a little more time since I 

have been interrupted so often. 

Mr. BACHUS. Well, actually, you are——

Mrs. KELLY. Mr. Hawke, I appreciate if what you said is true——

Mr. BACHUS. You are 5 minutes over. 

Mrs. KELLY. Just let me finish, please, my sentence. 

Mr. BACHUS. Well, I think the record is pretty clear——

Mrs. KELLY. I think that I am entitled to that. 

Mr. BACHUS.——that he doesn’t agree with Mrs. Bair’s assessment of the complaint-handling capacity. 

Mrs. KELLY. I think it will come as a bit of a stunning comment 

to the American Council of Life Insurers and the University of 

Massachusetts that you think that Ms. Bair is inaccurate in her 

numbers, which is why I actually wanted numbers from you and 

I would hope that you get back to the Committee and give us numbers to—if you think these are in error, give us some numbers that 

are not in error so that we can know what the facts are. 

Mr. HAWKE. I am not disputing the accuracy of the numbers. She 

got those numbers from us. What I am disputing is the conclusions 

that she draw gratuitously from the numbers. I think the numbers 

prove quite the contrary, that ours is a very efficient operation and 

that when you look at the number of complaints per FTE at the 

other agencies and look at what that implies as to the number of 

complaints that they can handle during the course of the year, it 

averages out to about one complaint every 2 days. And I don’t 

think that evidences a great deal of efficiency in the operation. 

Ours averages out about one to four and a half complaints a day, 

and I think that is because we run a very efficient operation. 

Mrs. KELLY. Perhaps you could give us some numbers then. 

Thank you. 

Mr. BACHUS. Thank you. 

Ms. Waters? 

40

Ms. WATERS. Thank you very much. 

First of all, let me thank you for being here, Mr. Hawke. I appreciate the work you have done over the years particularly on payday 

loans and the effort that you have put forward, and that is very 

important to me. I am sitting here listening very carefully to my 

colleagues, and I think you are in a little trouble here. And I am 

wondering why you are pursuing this at all. 

I am curious about a few things. You have cited your reasons for 

believing that you have the authority and it is based in the Constitution. You have explained to us you have all of these enforcement resources—1,700 examiners, 300 people on-site permanently 

and others. I think another group of 100 are involved with consumer protection and consumer complaints. 

I want to know then, given all of that, how many national banks 

or operating subsidiaries have been cited by the OCC for engaging 

in abusive real estate lending practices? And I am asking that 

question because when we take a look at the web site, the OCC’s 

web site lists only five enforcement actions taken against national 

banks for abusive consumer practices since 2000. Three of these actions involve credit cards, and two focus on small short-term lending. In contrast, State banking supervisors and attorneys general’s 

offices brought thousands of consumer actions during this period. 

So how do you justify given all the resources, the authority this 

preemption that you are insisting makes good sense? 

Mr. HAWKE. Well, I don’t know what the thousands of actions are 

that the State AGs brought. We have seen very little evidence of 

State AGs bringing actions against national banks, largely because 

Federal law says that they don’t have the authority to do that. I 

will have to get back to you on the number of actions against operating subsidiaries. 

I think it is important to recognize that when we examine our 

banks we really don’t distinguish between the bank and the operating subsidiaries in terms of the activities that they engage in. If 

a bank is engaged in the mortgage banking business and they 

carry it out in an operating subsidiary, we examine that as a unified operation. So if we take action, we may take action against the 

bank or we may take it against the bank and its subsidiary as well. 

But I——

Ms. WATERS. I am trying to find out where you have been effective or how you have been effective in this area. For example, I remember with Wells Fargo out in California there was a case 

brought by the State of California because Wells Fargo was charging interest before they registered the loans or something like that. 

And that was not an action that you discovered; that was an action 

by our State. And then I am looking at this Wachovia case here. 

That is an action by, I think, Connecticut and maybe one other 

State. So what are you doing? I mean——

Mr. HAWKE. The Wells Fargo action involved a statute that does 

not apply to national banks and was so held by a Federal court in 

California. The Connecticut action raises a similar question; that 

is, whether an operating subsidiary of a national bank is subject 

to the same preemption rules as the parent bank itself. That was 

involved in the California case, it is involved in the Connecticut 

case which is a pending decision now. There are two decisions in 

41

California that have upheld our position on the inapplicability of 

that law that you referenced to national banks. 

Ms. WATERS. That was brought to your attention by California, 

though; is that right? 

Mr. HAWKE. It was brought to our attention I believe by Wells 

Fargo, because the issue arose as to whether that statute could 

constitutionally apply to a national bank. This is one of the reasons 

that we felt that it was important to codify these preemption principles in a regulation, because there is a great deal of uncertainty 

created by laws of exactly that sort, whether it applies to national 

banks or not. And in that case, there were two cases out there in 

which the court said that that law did not apply to national banks 

or their operating subsidiaries. 

Ms. WATERS. Well, I guess what I am really getting at—and I 

understand how you can get involved with the question of who has 

the authority at some point. I guess what I am getting at is who 

is initiating the complaint with these kinds of cases? You say Wells 

Fargo. They may have come to you to ask about the authority, but 

I believe that it is the State of California to say, ‘‘Something’s 

wrong here. You shouldn’t be doing this.’’

Mr. HAWKE. The Corporation Commissioner raised that issue——

Ms. WATERS. Yes, of course. 

Mr. HAWKE.——with the Wells Fargo Home Mortgage Company, 

and that raised the preemption question, whether that law applied. 

And it was determined that that law didn’t apply, so there was no 

enforcement action taken in that case. 

Ms. WATERS. The question remains, in my mind, whether or 

not—well, I am convinced that the State should not be preempted. 

I don’t think you can do better than North Carolina, for example. 

I mean I wish every State could adopt the anti-predatory laws that 

North Carolina has adopted, and I think you would agree that 

there is nothing in your regs that could do any better than North 

Carolina. Wouldn’t you agree to that? 

Mr. HAWKE. No, I don’t agree, with great respect, Mrs. Waters, 

because these laws and the North Carolina law is one example of 

this that have had adverse unintended consequences that I think 

all Members of Congress should be concerned about. They have resulted in and threatened further constriction of the availability of 

subprime credit—good, non-predatory subprime credit. 

The subprime credit markets have expanded in recent years. 

They have been one of the reasons that home ownership in the 

United States is now at a record high level. Credit markets have 

opened up to people particularly in minorities that have not had 

access to credit before because of the advances in the subprime 

credit market. And what has happened with some of these predatory lending laws is that they have constricted the availability of 

subprime credit. When the New Jersey law was about to go into 

effect last November there was a story in the American Banker 

that said that subprime lenders plan to reduce their involvement 

in the subprime markets in New Jersey by 70 percent because of 

the New Jersey anti-predatory lending laws. 

Ms. WATERS. Well, let me just say this, Mr. Hawke. We don’t 

have time to debate it, my time is up, but I can tell you even 

though you give high praise to the subprime market, and some are 

42

very good, some bankers are very good at this, but we have discovered that a lot of minorities who have gotten these subprime loans 

were eligible for prime loans anyway and should have been getting 

them anyway. I mean that is one of the things that is come out of 

this. And then, of course, there is the whole story of the foreclosures, and we don’t have time to debate it at this time. 

I guess my concluding remarks are that I think you are in trouble on this issue, and no matter what happens in the court, the 

Congress of the United States can still legislate and then whoever 

would like will try and rule it unconstitutional, but I think that is 

where we are headed. 

Mr. HAWKE. I should just add, Ms. Waters that the question you 

raise about switching people to higher rate credit where they are 

eligible for prime credit is one of the issues that we addressed in 

our predatory lending guidance. That is something that we are concerned about, and we have admonished banks not to engage in that 

practice. And if we find that that is occurring, we will go after 

them. 

Ms. WATERS. We will see. 

Mr. BACHUS. Thank you. Thank you, Ms. Waters. It goes from 

one side to the other. I am just going to take about 30 seconds before I recognize Congressman Miller, though. But I will say this, 

not in the form of a question, but I think the best news that I have 

heard this morning, Comptroller Hawke, is that you don’t have any 

evidence that any of the national banks are engaged in predatory 

lending practices. I think I am correct if that is what I heard. 

Mr. HAWKE. That is what all the State attorneys general say. 

Mr. BACHUS. That is right. And I have heard no evidence to the 

contrary myself, nor have I heard any today. I have not heard any 

members accuse any of the banks in engaging in those standards. 

And I will say just for the record that my belief is that the preemption regulations issued in final form by the OCC in February 

contain strong standards for national banks to follow in avoiding 

predatory or abusive lending practices. Number one, there doesn’t 

appear to be any, among the national banks, any predatory lending 

practices. That may prove to be wrong or they may start, but I 

think what you are telling this committee is that you have in place 

what you feel is sufficient assets and sufficient personnel to handle 

complaints and to process complaints and investigate them. 

Mr. HAWKE. That is correct, Mr. Chairman. And, in addition, we 

have put out very strong, extensive admonitions to our banks, not 

only about avoiding getting involved in predatory lending but having policies to make sure—and controls to make sure that they 

don’t purchase predatory loans that are originated by others. And 

there is no other banking agency that has done anything remotely 

comparable to that guidance. 

Mr. BACHUS. Fine. Thank you. 

Mr. Miller? 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Hawke. You 

just said that what you have done has led to a diminution of availability of credit and subprime marketing to lower income borrowers. There was one study, I think, in Colorado that said that 

there was a diminished volume, but then there was a later study 

by the Kenan-Flagler School of Business, University of North CaroVerDate 0ct 09 2002 15:36 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 G:\DOCS\94902.TXT FIN1 PsN: MICAH
43

lina that said the only diminution in volume was of the bad loans, 

the ones that were being flipped repeatedly and that in fact, according to that academic study, that there was only a reduction of 

loans with predatory terms and that there was no restriction of access or increase in the cost of loans to borrowers with blemished 

credit. 

Morgan Stanley, fairly reputable outfit, concluded a survey in 

2001 that I believe was published, that the tougher predatory lending laws had not reduced subprime residential lending volumes in 

any significant way. Inside B&C Lending, which is apparently a 

leading trade journal, found that top North Carolina subprime 

lenders have continued to offer a wide variety, full array of products for borrowers in North Carolina with little or no variation in 

rate compared to other States. North Carolina commissioner of 

banks, Joseph A. Smith, said that they had not had a single complaint about the lack of available credit because of this law. The 

North Carolina bankers supported this law. 

What is your authority for saying that North Carolina law had 

led to a diminished availability for credit to subprime borrowers? 

Mr. HAWKE. Well, there are several studies that deal with the effect of the North Carolina predatory lending law, and there is some 

debate among the academics about the——

Mr. MILLER OF NORTH CAROLINA. Can you get those to me? 

Mr. HAWKE. I would be happy to. 

Mr. MILLER OF NORTH CAROLINA. Please, because I haven’t seen 

them. I have been looking. 

Mr. HAWKE. I would be happy to provide them. I think they are 

referred to in my written testimony, but subprime lending went 

down in North Carolina after the advent of the law compared 

to——

Mr. MILLER OF NORTH CAROLINA. Well, have you examined the 

North Carolina School of Business study? Have you examined that? 

Has anyone in your office examined that? 

Mr. HAWKE. The so-called Stegman study. Yes, we have examined that very carefully. That has been the subject of a lot of criticism by third parties who have no ax to grind that it was methodologically flawed, because it dealt with securitizations and it 

didn’t look at loan originations. I would be happy to give you——

Mr. MILLER OF NORTH CAROLINA. Please give me those studies. 

Please give me those studies. I would love to see it, because there 

seems to be a heavy volume on the one side saying that the law 

has worked, it has produced predatory terms but not the availability of credit, but in fact home ownership purchase money loans 

in the subprime market have increased. That is obviously the kind 

of money we want to make available. That is increased. And the 

only thing that is gone down is the volume of loans because of flipping and loans that have predatory terms. 

There have been a lot of questions and a lot of testimony today 

about your resources for compliance and enforcement. Ms. Waters 

referred to thousands at the State level. The information I have 

got, and I know this doesn’t apply to national banks, but the State 

bank supervisory agencies in 2003 initiated 20,332 investigations 

in response to consumer complaints, which resulted in 4,035 enVerDate 0ct 09 2002 15:36 Oct 05, 2004 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 G:\DOCS\94902.TXT FIN1 PsN: MICAH
44

forcement actions. How many enforcement actions did the OCC 

bring in 2003? 

Mr. HAWKE. I will have to furnish that information to you, but 

in 2003 we did process 70,000 complaints from consumers, most of 

which got resolved without enforcement action because our Customer Assistance Group is very effective in getting remedies for individuals who raise questions. They solve every day thousands of 

problems that customers have raised with their banks. 

Mr. MILLER OF NORTH CAROLINA. Okay. Please, if you could get 

me the number of enforcement actions, that would be very helpful 

as well. 

And you also said you had ample rulemaking authority under 

section 5 of the FTC Act. 

Mr. HAWKE. No, we don’t have rulemaking authority under 

the——

Mr. MILLER OF NORTH CAROLINA. But you can apply that. 

Mr. HAWKE. We can apply it on a case-by-case basis. The Federal 

Reserve has the exclusive rulemaking authority. 

Mr. MILLER OF NORTH CAROLINA. All right. And my understanding is in the last 30 years since they have had that rulemaking authority that they have promulgated two rules pursuant 

to that authority? 

Mr. HAWKE. Right. That is exactly why we moved forward to use 

our authority to issue cease and desist orders in individual cases 

without the benefit of a rule, and we have probably had—since we 

asserted that authority, we have probably had 10 or 12 cases where 

we have used that very effectively. 

Mr. MILLER OF NORTH CAROLINA. Well, let me ask you about 

some specific practices that I know are happening right now and 

whether you regard those as being violations of—prohibitional unfair and deceptive trade practices. Single premium credit insurance 

is non-refundable. 

Mr. HAWKE. I think you can’t simply take a practice out of context and say without benefit of the rule that——

Mr. MILLER OF NORTH CAROLINA. So I am getting a firm maybe? 

Mr. HAWKE.——it is automatically unfair and deceptive. 

Mr. MILLER OF NORTH CAROLINA. All right. Moving on, we heard 

testimony in this room, 2 subcommittees of this committee, 2 days 

ago of lower income borrowers coming away from the closing knowing what they are getting, how much money they are getting at 

closing, knowing how much money they are paying a month but 

finding out sometime later that the page after page after page of 

legally gobbledy-gook amounted to something like $20,000 or 

$30,000 in points and fees built into the loan. And they have discovered that the equity in their home, their life savings when they 

tried to sell their home or when their children did when they died 

that their equity was largely gone, their life savings was largely 

gone. They didn’t even know that it happened. Are you now pursuing any kind of advisory to prevent that from happening? Are 

you encouraging any rulemaking on that point? Do you think existing law prohibits it? What are you doing about it? 

Mr. HAWKE. In our advisory on predatory lending, we identified 

a number of practices that frequently accompany predatory lending 

activities, and we told our banks that if we found any evidence of 

45

it in the banks, we would come after them with remedial orders 

and restitution orders. 

Mr. BACHUS. Okay. Thank you. 

Comptroller Hawke, I am concerned that you have been here 

since quarter after 10, and that is a mighty long time for you to 

be in the chair. Mr. Israel and Mr. Gutierrez both want either 5 

minutes or whatever. We have been going over. Do you——

Mr. HAWKE. I am fine. 

Mr. BACHUS. You are fine. Okay. All right. 

Mr. Israel? 

Mr. ISRAEL. Thank you, Mr. Chairman, and thank you, Mr. 

Hawke, for hanging in for as long as you have. I do have a question 

for you. You dealt with it in a limited way prior. But before that 

I just want to clarify one important point. I was going to make this 

point in an opening statement but in the interest of the Committee’s time, I deferred. 

As you know, this is the only time that the full committee has 

met to address this issue, and during consideration of the budget 

views and estimates we were asked to vote on an amendment that 

questioned the OCC’s ability to implement this rule under your 

budget. I supported that amendment because I am a blue dog and 

I believe in fiscal responsibility and budget accountability, and I 

believe that we have to make the budget process and your budget 

process as accountable as possible. 

But I don’t want anyone to interpret my vote on that amendment 

as opposition to the rule itself. I believe that there is a very strong 

case to be made that these regulations will help preserve the dual 

banking system. And without Federal preemption national banks 

would be subject to State and local laws and the distinctions between State and national banks clearly would disappear. And that 

was not Congress’ intent in establishing Federal banking charters 

and a Federal regulator, which leads me to my question. 

I have listened carefully to opponents of this rule as they have 

argued that it will in fact limit the effectiveness of State laws and 

consumer protections. I believe that I am a very strong advocate 

for consumers in my district and around the country. I also believe 

that different levels of government have different resources and capacities and capabilities to enforce consumer rules and regulations 

that offer the most vigorous and expansive protection of consumers. 

Everybody has their own tools and toolboxes and collectively that 

is the strongest mechanism for enforcing consumer protection. 

Some have said that you do not have enough tools in your toolbox, that your toolbox just isn’t big enough to protect consumers 

and enforce consumer protection laws and that it is impossible for 

the OCC and State regulators to work in conjunction with each 

other. You have dealt with that several, maybe hours ago, but you 

have dealt with that prior in this hearing. 

I just want to ask you for the record to reassure me, as someone 

who believes strongly in consumer protection, that you have the 

numbers and the qualifications and sufficient resources to work 

with State regulators and to enforce the law and protect our consumers. 

Mr. HAWKE. Absolutely. I have an absolutely strong conviction 

that we do. I believe that our resources are very significant. We 

46

have a very rigorous budget process, and our budgets have been 

well-balanced. We have got all the resources we need to put into 

this. The issue is, I think, is how we best cooperate and coordinate 

with State officials so that we are not competing to see who can 

get to the court first on these issues but that we refer matters back 

and forth. 

We have the ability with bank examiners—bank examiners have 

a special relationship with banks, and when a bank examiner 

comes into a bank and says, ‘‘I want you to fix something,’’ they 

get—by and large, they get very quick responses. And it is a lot 

more effective for us to use the examination process to cure some 

of these problems than to have somebody go into court and initiate 

a proceeding that is going to drag on for years at great expense to 

everybody. 

So if we could find a modus operandi where if Attorney General 

Spitzer has a complaint, for example, against one of our banks or 

a subsidiary of our bank, if he would let us know about it instead 

of filing a lawsuit, we could get the matter fixed, as we did in the 

case that is presently pending. I think cooperation is the best way 

to achieve what we all want for the protection of consumers. 

Mr. ISRAEL. OCC currently has how many employees? 

Mr. HAWKE. We have got about 2,800 employees. 

Mr. ISRAEL. How many are bank examiners? 

Mr. HAWKE. Seventeen hundred are field examiners. We have 

another couple hundred who are in management positions. 

Mr. ISRAEL. Thank you, Mr. Hawke. 

And I yield back the balance of my time, Mr. Chairman. 

Mr. BACHUS. Thank you, Mr. Israel. 

Mr. Gutierrez? 

Mr. GUTIERREZ. Thank you very much, Mr. Hawke, for being 

with us here this morning. I guess I just want to go over a few 

things and then, once again, implore you and your good offices to 

sit down with everyone and work this stuff out, because I just want 

to make it clear and put it on the record that you cite your authority as being 140 years old, going back to the Civil War and the National Bank Act. And as I shared with you in my office, if that were 

true, then you would be guaranteeing the money that the Mint 

today produces as really a one dollar bill, a five dollar bill. You no 

longer do that, nor do you have that authority. The Mint has that 

authority. 

And I guess I would be writing to you and your examiners on 

April 15 because you would have the authority under that law to 

collect my taxes. But I don’t deal with you or your bank examiners, 

although I might like that to be the case that I would be audited. 

I think you would probably be a fair arbiter of what my taxes 

would be. 

And I mean it would be so sensational, Mr. Chairman, Mr. Bachus, that if you were representing Alabama, citing the Bank Authority Act, you would be calling President Jefferson Davis and I would 

be calling President Lincoln. That is how far back this goes in 

terms of what you are citing. Obviously——

Mr. BACHUS. I don’t think we had telephones back then. 

Mr. GUTIERREZ. I am sorry. 

Mr. BACHUS. I don’t think we had telephones back then. 

47

Mr. GUTIERREZ. You would be riding on a horse and so would I 

to call our respective presidents of this country. 

So I think that is pretty old precedent. Things have changed 

since then, and the authorities you had and that you cite under 

that act have changed dramatically. Well, I don’t know that I 

would pay my taxes to you under that legislation nor did the Federal Reserve banks and board exist at that time. Things have 

changed and our Federal banking system has changed since then. 

And so we can argue and debate the merits of one thing or another, but there is a quote from the Wall Street Journal, which Mr. 

Frank has put in the record, that says, it is a quote of you, ‘‘It is 

one of the advantages of a national charter, and I am not the least 

bit ashamed to promote it.’’ So I know you promote national banks. 

I guess as a former representative of a local where we think we do 

things well, that is at the State level, whether it is Illinois or Georgia or North Carolina, we think we do things well. 

Can’t we not—because I believe that the Congress has shared 

with you, and many congressmen from both sides of the aisle have 

shared with you this morning and on various other occasions that 

we disagree. So there are a couple of options when you have a disagreement, right? One is that Congress can take actions, which you 

have said, ‘‘Please go ahead.’’

But I think that reasonable people—because I want to say this 

for the record: I think what the OCC does is a great job. We are 

not here to say you are not doing a great job. But I think there 

are other institutions that can help and that States now have abilities to help the consumers. It is not an either-or. Maybe it is a 

plus-plus situation. You know when they used to say English as 

the official language, I said, ‘‘No, English-plus. Let’s learn French 

and Spanish and every other language.’’

And in this case, it is kind of like the OCC-plus, and if we could 

work out among ourselves in a deliberative, conscientious manner, 

then there isn’t the need for hearing, we can all go about what we 

need to do, and I think you would be strengthened by having the 

support of both sides of the aisle, whether it is in the Senate or 

in the House, to do the job that I believe you want to do, which 

is to regulate and keep the safety and soundness of our national 

banks and hear from us about our consumer issues. 

Maybe if Attorney General—I am just thinking—Attorney General gets a complaint, shares it with you, 30 days later unresolved, 

he pursues it. I don’t know how we do this, but I am sure we can 

work out rules in which you can preserve the integrity of the institution that you were nominated and confirmed to protect, and we 

can do our jobs in terms of helping our States and our consumers 

be better served. That is my point. 

Mr. HAWKE. Mr. Gutierrez, I completely agree with the importance of coordination and cooperation. We strongly believe I that. 

The table that I passed out earlier shows that de facto is an enormous clearing mechanism that is working every day. Complaints 

that are received in our Customer Assistance Group if they don’t 

belong to us, they get referred back to the right authority. Complaints that go to the States are referred to us. Last year, we had 

6,500 complaints referred by State authorities to us. We think that 

we can work very effectively together. 

48

It is true things have changed in 140 years, but one thing that 

hasn’t changed is the constitutional principle that was first announced by the Supreme Court in 1819, which is that the States 

do not have the constitutional authority to restrict the powers that 

Congress has granted to Federally created entities. Congress has 

the power to change that——

Mr. GUTIERREZ. I understand that, but I think there is—again, 

and we have had this discussion before, we can argue, right, about 

what Congress said and didn’t say and so Congress can then say, 

‘‘We disagree with Mr. Hawke, so, therefore, we are going to legislate this way.’’ That could give this Congress work that maybe 

some feel it should have, but I think that among reasonable people—because I want to make it absolutely clear: I have stated that 

I think that what the OCC does is wonderful. I don’t have problems 

with my nationally chartered banks. In my community, most of 

them they are good, honorable, hardworking people that go out 

every day and proactively search for lending products for those underserved communities. So I will say that in terms of the banking 

community. This is not a fight about the banking community. This 

is a fight about who is going to do that. 

So all I would say is I will write a letter to the Attorney General. 

I will say, ‘‘Please, all 50 States, and to all the 50 States, all the 

bank examiners in those 50 States, please tell me where the OCC 

preemption on this issue affects consumers.’’ And we will start that 

as a point at which your staff, our staff, I will be involved, others 

can get involved to resolve this. You win, States win, we resolve 

the issue, and we move forward. That is all I am trying to do here 

today. 

Mr. HAWKE. If we can provide more effective protections for consumers, we are eager to pursue that course. And I think the best 

way to do so is by continuing to coordinate and exchange information with the State law enforcement authorities. 

As I said before, a year ago we proposed a memorandum of understanding that would facilitate exactly what you are talking 

about, and so far we have had only one response to it. The State 

of Maine has agreed to it. Nobody else has even come back with 

comments on it. So we are eager to find a modus operandi that will 

make sure that we are all informed about what is going on in the 

banking system and that we are taking steps to protect consumers 

most effectively within our respective jurisdictions. 

We have very awesome powers, and when we send bank examiners into a bank we can get results. We can fix problems before 

they become systemic. We can get nationwide remedies if we find 

systemic problems. I think we far better enforcement barriers than 

our colleagues at the State level in respect of dealing with banks. 

Mr. BACHUS. Thank you. 

Comptroller Hawke, just following up, and I am not going to ask 

you questions, but one thing I would be interested in is do most 

consumers, most homeowners know about the complaint resolution 

system? I mean is that information prominently displayed in——

Mr. HAWKE. It is. And, Mr. Bachus, I think the best evidence of 

that is the fact that we get 70,000 calls a year. Many consumer 

groups post our 800 number on their web sites. The number gets 

around, because we get 14,000 to 15,000 complaints a year that 

49

don’t even belong to us, and we farm those out back to the responsible agencies. So people find their way. 

And one of the things that we can do with better coordination 

with the States is to make sure that if there is any question about 

where a complaint should go that we take steps to make sure that 

it gets to the right place. 

Mr. BACHUS. Thank you. Let me ask one final question. One 

thing I want to do just for the record is you stated several times 

in this hearing room and other venues that you are very concerned 

about the state of Basel II, the negotiations and the complexity of 

those. I am going to submit some written questions to you concerning that in the interest of time, but I do want to end with this 

question. Comptroller, we have heard from some industries but in 

particular the check cashing industry. The banks have dropped 

them as customers as a whole industry. They just came in and 

said, ‘‘We are not going to have check cashers as customers anymore,’’ even though there were no individual problems with individual check cashers. And they cite an OCC policy that they need 

more scrutiny than other businesses. And I think I have talked to 

you about this, and I think that they may be at a higher risk for 

money laundering, at least that is one of the things that is offered. 

And my question to you is, and I have looked at the guidelines 

on the high risk and what is—and attorneys, car dealers, jewelry 

stores are all considered by our government as in that same category. But I have not heard from any car dealerships, I have not 

heard from any attorneys, I have not heard from any jewelers that 

any of their businesses have been dropped by banks. And I am concerned that there is discrimination or unreasonable interpretation 

of those guidelines, maybe by individual examiners. Would you like 

to comment on that? 

Mr. HAWKE. I can’t say that I know for sure, Mr. Chairman, exactly what the complaints are about the check cashers. I know that 

when I was at the Treasury Department there was an issue about 

the linkages between check cashers and banks with respect to direct deposit. 

Mr. BACHUS. Yes. That is a different issue, I think. 

Mr. HAWKE. The issue here, I suspect, relates more to money 

laundering, and I would say that we have done nothing that should 

have resulted in banks dropping check cashers as a class, and I 

think that is one of the things that has to be looked at on a caseby-case basis. 

Mr. BACHUS. And I would like you to be aware of that, because 

these are the legitimate licensed businesses. And I might disagree 

with certain type of businesses, but I think they have the right to 

have national banks and to—so I would appreciate you looking into 

that. 

Let me close by saying that you have been subject to a rigorous 

examination here this morning, and I personally think you have acquitted yourself very well. You have been under a long examination, and I think your answers have been candid, I think they have 

been open, and I very much appreciate your testimony here this 

morning. And although I may not be the one that should be offering an apology, I think on at least one or two occasions you were 

treated somewhat shabbily by members, and I apologize for that. 

50

Mr. HAWKE. Mr. Chairman, I appreciate the interest and involvement of this committee. These are important issues and there are 

no easy answers, but I welcome the opportunity to try to clarify our 

view of the implications of what we did, because I think there have 

been some significant misstatements and exaggerations about the 

impact of our regulations. 

Mr. BACHUS. All right. And I think that you were vigorous in 

pointing that out. And I think you have maintained dignity in a 

high degree of professionalism, and I thank you for that. 

Mr. HAWKE. Thank you, Mr. Chairman. 

Mr. BACHUS. With that, our committee is dismissed. 

[Whereupon, at 1:07 p.m., the Committee was adjourned.] 

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