An association of state banking regulators took its fight against new national adjustable-rate mortgage regulations to U.S. Distric Court here last week, charging that the Comptroller of the Currency does not have the authority to override more stringent state laws governing bank lending practices.
In a replay of its original objection to the ARM regulations first proposed last fall, the Conference of State Bank Supervisors said that, under the country's dual banking system of national- and state-chartered banks, present state laws continue to apply to the making of ARM loans by both types of banks. But by preempting more stringent state laws, the regulations give U.S.-chartered banks an unlawful competitive advantage over state-chartered banks, which are not allowed to raise and lower their rates as often or by as much as the U.S.-chartered banks, the supervisors contended.
The suit asks that Acting Comptroller Charles E. Lord rescind, withdraw or modify his predecessor's ARM regulation, which applies only to banks, to establish parity between state and federally chartered institutions. Savings and loan institutions can make adjustable-rate loans -- in which interest charges are raised or lowered periodically, based on national interest-rate indices -- under separate authority of the Federal Home Loan Bank Board.
"Congress has not delegated to the comptroller the authority to issue regulations preempting [existing] state laws," the group charged in its suit, adding that the comptroller has taken the position that he can do so.
Among the five states cited as having more stringent laws are Pennsylvania, where interest rates may not change during the first year of a loan, and Iowa, where adjustments may not be made more than once a year.