OCC’s mission focuses on the chartering and oversight of national banks to ensure their safety and soundness, on fair access to financial services, and on fair treatment of bank customers. As of March 2005, the assets of the banks that OCC supervises accounted for approximately 67 percent— about $5.8 trillion—of assets in all U.S. commercial banks. Among the more than 1,800 banks OCC supervises are 14 of the top-20 commercial banks in asset size. OCC groups its regulatory responsibilities into three program areas: chartering, regulation, and supervision. Chartering includes not only reviewing and approving applications for charters but also reviewing and approving proposed mergers, acquisitions, and reorganizations. Regulation includes establishing written regulations, policies, operating guidance, interpretations, and examination policies and handbooks. Additionally, in its most recent strategic plan, OCC identified its regulatory approach as one that would ensure that national banks operated in a “flexible legal and regulatory framework” that enables them to provide a “full competitive array” of financial services. According to OCC’s latest strategic plan, OCC’s supervision program consists of ongoing supervisory and enforcement activities undertaken to ensure that each national bank is operating in a safe and sound manner and is complying with applicable laws, rules, and regulations concerning the bank, customers, and communities it serves. OCC’s supervisory activities include examinations and enforcement actions, dispute resolution, ongoing monitoring of banks, and analysis of systemic risk and market trends. OCC policies establish a minimum level of activity that must occur during the supervisory cycle, during which time examiners assess the overall condition of the bank in the areas of capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risks. Such examinations are generally referred to as “safety and soundness” examinations. In large banks, much of this work is conducted throughout the year by examiners assessing specific aspects of a bank’s management and operations, while in the smaller banks, the on-site examination generally occurs at one time during a 12- or 18-month period. OCC has a team of full-time, on-site examiners who are located at large banks throughout the year and who conduct ongoing monitoring and examinations. In addition to the safety and soundness examinations, OCC conducts compliance examinations that assess the bank’s compliance with laws intended to protect or assist consumers, such as laws related to disclosure of loan terms, fair lending, equal credit opportunity, and others. Consumer compliance examinations are conducted on a continuous 3-year cycle in large banks and at least every 36 months at small banks. OCC traditionally has issued opinions on a case-by-case basis, rather than rules or regulations, on whether the National Bank Act preempts state laws that impose standards or restrictions on the business of national banks. In contrast, on January 13, 2004, OCC issued the two preemption rules on the extent to which the National Bank Act preempts the application of state and local laws to national banks and their operating subsidiaries. The rules and the manner in which OCC promulgated them generated considerable controversy and debate, including questions about OCC’s authority to issue the rules. According to OCC, the two rules “codified” judicial decisions and OCC opinions on preemption under the National Bank Act by making them generally applicable and clarified certain issues. The visitorial powers rule, as stated by OCC, clarifies that (1) federal law commits the supervision of national banks’ banking activities exclusively to OCC (except where federal law provides otherwise) and that (2) states may not use judicial actions as an indirect means of regulating those activities. The banking activities rule preempts categories of state laws that relate to bank activities and operations, describes the test for preemption that OCC will apply to state laws that do not fall within the identified categories, and lists certain types of state laws that are not preempted. In proposing the banking activities rule, OCC stated that it needed to provide timely and more comprehensive standards about the applicability of state laws to lending, deposit taking, and other authorized activities of national banks because of the number and significance of questions banks were posing about preemption in those areas. However, opponents such as consumer groups and state legislators feared that the preemption of state law, particularly concerning predatory lending practices, would weaken consumer protections. They noted, in commenting on the preemption rules, that the rules would prevent states from regulating operating subsidiaries of national banks and would diminish the states’ ability to protect their citizens. Prior to OCC’s issuance of the rules, consumers who had complaints with national banks or their operating subsidiaries sometimes filed complaints with state officials who tried to resolve them, although consumers could have filed such complaints with OCC, and many did. Since OCC issued the rules, some state officials refer all complaints involving national banks to OCC while others, through informal arrangements, still try to assist consumers. It is too soon to assess the practical effect of the rules on a consumer who has a complaint with a national bank, given the short time frame and legal questions raised by opponents to the rules. We address some facets of the rules’ practical effect on consumers in this report and will address others in our subsequent report on the impact of the rules on the dual banking system and consumer protection. One of OCC’s strategic goals is to ensure all customers have fair access to financial services and are treated fairly. The agency’s strategic plan lists objectives and strategies to achieve this goal, including fostering fair treatment through OCC guidance and supervisory enforcement actions where appropriate, and providing an avenue for customers of national banks to resolve complaints. The main division within OCC tasked with handling consumer complaints is CAG. This group is a part of OCC’s Office of the Ombudsman, a distinct division of OCC that operates independently of the agency’s bank supervision function. In addition to CAG, the Office of the Ombudsman oversees (1) the national bank appeals process—a forum by which banks may appeal the results of OCC’s supervisory examinations and ratings and (2) a postexamination questionnaire to obtain feedback from banks. The Ombudsman reports directly to the Comptroller and is a member of OCC senior management team (the Executive Committee) that includes the Chief Counsel, the Chief National Bank Examiner, and the Senior Deputy Comptrollers for Large Bank and Mid-size/Community Bank Supervision. CAG’s mission is to ensure that bank customers receive fair treatment in resolving their complaints with national banks. According to the 2004 Report of the Ombudsman, CAG carries out its mission by providing services to three constituent groups: (1) customers of national banks—by providing a venue to resolve complaints, (2) OCC bank supervisors—by alerting supervisory staff of emerging problems that may result in the development of policy guidance or enforcement action, and (3) national bank managers—by providing a comprehensive analysis of complaint volumes and trends. The Deputy Ombudsman manages and directs CAG operations. Since 1999, CAG has employed about 40 full and part-time staff, and it had 49 staff in 2005. The annual operating and personnel budget attributable to CAG operations more than doubled from $2.6 million to $5.4 million between 1999 and 2005. According to our analysis of CAG budget and staffing data, the budget’s growth has outpaced that of staff due to the design and implementation of its computer network. OCC’s process for handling and resolving consumer complaints is similar to that of the other three federal bank regulators. We identified six distinct steps that all of the federal regulators follow when processing consumer complaints. Unlike two of the federal regulators, OCC lacks a process for collecting feedback from consumers it assists. OCC and the other federal regulators also resolve complaints in a similar fashion, with the outcomes generally falling into the same categories. While the most common resolution of complaints was that of the regulator providing the consumer additional information, regulators also consider a complaint resolved if it is withdrawn or tabled due to litigation, or if the regulator determines that the bank did, or did not, make an error. The volume of complaints OCC handles is generally in proportion to the assets of the national banks it supervises. From 2000 through 2004, OCC handled on average more than twice as many complaints as the other regulators combined. OCC and other federal regulators have similar goals in responding to consumer complaints in a timely fashion. However, by combining consumer inquiries and consumer complaints in determining whether it met its timeliness goals, OCC overstated its performance on these goals. All four federal regulators we reviewed take similar approaches in processing consumer complaints about banks they supervise. The regulators define their role as a neutral arbiter between consumers and the banks they regulate when processing complaints. For instance, the 2004 Report of the Ombudsman states that CAG’s role is to be neutral in answering questions and offering guidance on applicable banking laws, regulations, and practices and that it should not be an advocate for either the bank or consumers. As illustrated in figure 1, each regulator generally follows six distinct steps in processing a complaint: The consumer submits the complaint; The regulator determines if the bank is under its supervision; The regulator forwards the complaint to the bank; The bank sends a response to the regulator; The regulator examines the response to see if it completely addresses the consumer’s complaint; and The regulator notifies consumer of complaint’s outcome. Although consumers may initially contact OCC or other regulators about their complaints via various methods, such as telephone, mail, fax, or, in some cases, E-mail, regulators normally do not formally accept a complaint until they have received a signed complaint form or letter. After a regulator receives a formal complaint, it must then determine if the bank involved is under its jurisdiction.