U.S. PIRG Consumer Blog: Who's Watching Your Money? Yikes, It's the OCC

Two posts back, we explain that putting Michael Baroody in charge of the Consumer Product Safety Commission (CPSC) would be "putting the fox in charge of the henhouse." I'm not sure that metaphor works to describe the powerful, if obscure, Office of the Comptroller of the Currency (OCC) (our historical OCCWatch pages). You see, this office acts more like a sheep, at the request of its regulated national banks, but the result is the same. The only time it bares its fangs is in court, where it aggressively defends its power against state or local legislatures or pesky state attorneys general or district attorneys fighting predatory lending or unfair practices on behalf of their citizens.

Two distinguished and expert commentators have delivered withering critiques of the OCC recently, predicting things will only get worse for consumers expecting a fair marketplace. In an op-ed column Who's Watching Your Money? in today's New York Times, Manhattan District Attorney Robert M. Morgenthau scolds the agency (which is largely funded by banks, not taxpayers) for timidity, but predicts it will grow in power following a disappointing recent Supreme Court decision, Wachovia v. Watters (our recent post with links), tying the hands of state regulators.

Since January 1, 1995, the OCC has not issued a public enforcement order against any of the eight largest national banks for violating consumer lending laws. In contrast to this absence of public enforcement action by the OCC against major national banks, state officials and other federal agencies have issued numerous enforcement orders against leading national banks or their affiliates -- including Bank of America, Bank One, Citigroup, Fleet, JP Morgan Chase, and US Bancorp -- for a wide variety of abusive practices over the past decade, such as predatory lending, privacy violations, telemarketing scams, biased investment analysis, manipulative initial public offerings, and allowing hedge funds to engage in late trading and market timing in bank-sponsored mutual funds.

Professor Wilmarth also points out that the OCC has taken 13 actions against banks for unfair practices, but 11 of those were against banks you'd never heard of, and the two against large banks were taken only after the OCC had been prodded into belated action by state or local officials. Wilmarth goes on to explain the benefits to the OCC of weak regulation-- more banks want to become nationally-chartered banks, and the OCC's budget grows:

During 2004-05, the OCC's assessment revenues rose by 15%, primarily due to the transfer of $1 trillion of banking assets into the OCC's jurisdiction by virtue of the charter conversions of JP Morgan Chase, HSBC and Bank of Montreal. Thus, the OCC has a powerful financial interest in pleasing its largest regulated constituents, and the OCC therefore faces a clear conflict of interest whenever it considers the possibility of taking an enforcement action against a major national bank.