Attempts by states such as Illinois and Florida to force nationally chartered banks to comply with state rules “fly in the face” of what federal lawmakers intended when they created the national banking system more than 160 years ago, former Comptrollers of the Currency Eugene Ludwig and John Dugan said in a new column for American Banker.
Illinois earlier this year enacted a state law barring interchange fees on the tax and tip portion of a debit or credit card transaction in the state. Florida passed a law preventing financial institutions from denying banking services because of a customer’s political or religious beliefs. Both are examples of “a troubling threat” of states trying to impose state rules on national banks, according to Ludwig and Dugan.
“These new state requirements fly in the face of what President Lincoln and Congress envisioned when they created the national banking system in the 1860s,” the two former comptrollers said. “The previous decades had seen a rash of bank failures and national panics resulting in part from weak supervision and conflicting state laws. As a solution, Lincoln’s idea of national bank preemption allows local citizens and companies to choose between banks that want to operate under state standards and national banks that work under federal standards.”
If the Illinois and Florida laws stand, other states could require national banks to adhere to their state rules on a variety of banking activities, balkanizing finance in the U.S. much as it was historically balkanized in Europe, Ludwig and Dugan said.
“The bottom line is that attempts by states to deprive national banks, consumers and businesses of a uniform set of standards and practices is anti-free market, anti-consumer and contrary to the safe and sound operation of national banks,” they said. “To allow these state practices to stand will undercut the safety of America’s banking system and hurt American businesses and consumers.”
