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Wednesday, March 05, 2014

Down with OCC?

Most banking experts would agree that the Office of the Comptroller of the Currency (OCC) is the most captured of the banking agencies. In fact, given its funding structure (it is paid fees by the banks it regulates), how could it not be? If you don’t believe me, go and read Saule Omarova’s excellent article that carefully describes the OCC’s use of interpretive letters to allow banks to engage in derivatives trading, which is clearly outside the parameters of “the business of banking.” The OCC allowed a historical expansion of traditional banking activities and introduced unprecedented risk into the banking sector without seeking public comment through rulemaking. In addition to allowing banks to engage in risky activities, the OCC also did its best to protect national banks from state consumer protection laws. In other words, the OCC repeatedly asserted that federal consumer protection law preempted state consumer protection law. That would be just fine if there were similar federal consumer protection laws that the OCC or other regulators meaningfully enforced. What it actually did, as Art Wilmarth explains, was to free national banks from any consumer protection law that had any bite. But why wouldn’t you do that if you are funded by fees from the very banks that get to choose you as their regulator? 

After the financial crisis, some suspected that the OCC would be disbanded like the OTS. But that didn’t happen. It would appear that actually nothing happened to punish the OCC except some verbal slapping around by Congress. Indeed, Congress—for mysterious reasons—elevated the OCC’s status by making it an independent agency. However, Kent Barnett’s article, Codifying Chevmore (forthcoming in the NYU Law Review), points out that Congress does actually punish the OCC in a way that has huge repercussions for the administrative state.

The article says that Dodd-Frank slaps the OCC with a “Skidmore penalty” for preemption decisions. Meaning: while all the well-behaved agencies get stronger Chevron deference, the OCC now has weaker Skidmore deference. This does a few important new things: (1) alerts the courts that they need to keep an eye on the OCC, (2) sends a strong message of disapproval to the captured agency, (3) codifies Chevron and Skidmore deference (which he calls Chevmore) for the first time, suggesting that Congress knows of and generally acquiesces to the Chevmore doctrines, and (4) establishes that Congress has found another legislative tool for agency oversight—what Congress giveth in agency interpretive discretion, it can taketh away.

The Skidmore penalty is a great message Congress sends to the OCC as to agency preemption. But it does not apply to other OCC decisions. Congress went out of its way in Dodd–Frank to say just that (§25b(b)(5)(B)).So nothing stops the OCC from acting through guidance documents as it did with derivatives. Should Congress use the Skidmore Penalty for other OCC decisions? Other agencies? Which ones? And will it ultimately make any difference to agency decision-making?

Posted by MehrsaBaradaran on March 5, 2014 at 02:39 PM | Permalink

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But the likelihood of the agency prevailing under Skidmore is essentially the same as under Chevron. Eskridge & Bear report in their empirical study of the Supreme Court treatment of agency statutory interpretations that the agency prevailed in 76.2% of cases using Chevron deference and in 73.5% of cases using Skidmore. So what sounds like a penalty isn't really a penalty at all.

Posted by: Urska | Mar 5, 2014 7:07:28 PM

Hi, Urska,
At the end of my paper, I discuss whether requiring Skidmore or Chevron will have any practical effect. (pp. 55-56). I consider a number of empirical studies that Dick Pierce helpfully discussed together concerning the outcomes in Skidmore and Chevron cases. Although he, too, concluded that the difference was negligible because the affirmance ranges overlapped (Skidmore's was between approximately 55 and 74% and Chevron's was between 60 and 81%), I respond in three ways. First, one must be careful when looking at the various studies because of how some compare only certain agencies or because of when the cases were decided. Second, even if the affirmance rates are the same, this doesn't mean that they always will be if Congress--as it has done in Dodd-Frank--signals that it wants courts to engage in more and less intensive review and courts listen. Indeed, courts and commentators have understood the "mood" that Congress was attempting to create in Dodd-Frank for more intensive judicial scrutiny. Another bill in the Senate includes Skidmore codification and attempts to set the same intensive mood. If the delegation theory really cares about congressional intent, courts should respond to Congress's signal for differing intensive review. And third, agencies may be behaving differently (and better) when they know that Skidmore applies. This is an empirical question that Chris Walker at Ohio State is working on answering. And Cathy Sharkey's interviews of certain OCC officials after Dodd-Frank indicates that they have gotten the message that including more record evidence and consideration of preemption matters is more likely to lead to judicial approval. So at the end of the day, I think that Chevmore codification may prove useful even if the two standards have, up to now, led to similar outcomes.

Posted by: Kent Barnett | Mar 5, 2014 8:48:37 PM

All of this shifting of burdens and lessening of review standards doesn't accomplish anything. It is all cosmetic. It doesn't get to the core of the problem -- an agency that should be protecting consumers was doing the exact opposite. In the time it takes to find out the problem, pass a law that slaps them lightly on the wrist, etc, there has been a delay and erosion of legitimacy and consumer protection.

It reminds me of Kafka's parable The Emperor:

"A man doubted the emperor was descended from the gods. He asserted that the emperor was our rightful sovereign, he did not doubt the emperor's divine mission, it was only the divine descent that he doubted. This naturally did not cause much of a stir. When the surf flings a drop of water onto the land, it does not interfere with the eternal rolling of the sea, on the contrary, it is caused by it."

The cycle is: agency rot, band aid reform, celebration, new rot, new band aid, new celebration.

The only solution is massive bans on revolving doors.

Posted by: Doug L | Mar 6, 2014 6:44:41 PM

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