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The OCC, under Comptroller John D. Hawke, sought yesterday to fend off criticism from consumer advocates that it favors banks over consumers. Mr. Hawke asserted that his office is far better positioned than individual states to fight abusive lending practices while assuring that loans are available not just to the relatively well off but also to borrowers from all walks of life. "Our regulation will ensure that predatory lending does not gain a foothold in the national banking system," Mr. Hawke said.

The move is an "attempt to shield national banks from important state consumer-protection laws, and to entice state-chartered banks to obtain a national charter and seek the immunity that the OCC is offering." said New York State Attorney General Eliot Spitzer. "By giving banks a safe harbor, the OCC has a chilling effect on state laws." Mr. Hawke dismissed Mr. Spitzer's criticism of the OCC's record on consumer protection. "We were working on behalf of consumers long before he came to office and will be doing so long after he leaves," Mr. Hawke said.

The OCC has maintained that it has proved repeatedly that it will crack down on national banks that engage in abusive lending practices. But it also said that national banks are rarely caught up in such shady practices. "There is scant evidence that regulated banks are engaged in abusive or predatory practices," Mr. Hawke said.

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A FEDERAL AGENCY issued new rules allowing it to override state authorities as the sole regulator of nationally chartered banks, prompting outrage among opponents who say the move will cause more consumers to suffer at the hands of their lenders.

The Office of the Comptroller of the Currency issued two regulations, one granting the Washington-based agency the sole right to draft the rules that govern national banks, and a second that gives the OCC the sole right to enforce those rules. The move, scheduled to take effect in about a month, has huge implications for the regulation of the booming consumer-finance market on which the fortunes of many large financial institutions now rest.

The OCC, under Comptroller John D. Hawke, sought yesterday to fend off criticism from consumer advocates that it favors banks over consumers. Mr. Hawke asserted that his office is far better positioned than individual states to fight abusive lending practices while assuring that loans are available not just to the relatively well off but also to borrowers from all walks of life. "Our regulation will ensure that predatory lending does not gain a foothold in the national banking system," Mr. Hawke said.

That assertion was panned by consumer advocates as well as by state officials. These critics have long said federal regulators such as the OCC are far too lenient with large financial institutions, doing too little to stop practices that particularly take advantage of poor and often financially unsophisticated borrowers.

The move is an "attempt to shield national banks from important state consumer-protection laws, and to entice state-chartered banks to obtain a national charter and seek the immunity that the OCC is offering." said New York State Attorney General Eliot Spitzer. "By giving banks a safe harbor, the OCC has a chilling effect on state laws." Mr. Hawke dismissed Mr. Spitzer's criticism of the OCC's record on consumer protection. "We were working on behalf of consumers long before he came to office and will be doing so long after he leaves," Mr. Hawke said.

The development is the latest example of the growing tension between state and federal regulators over how to govern the ways in which large and growing financial institutions interact with consumers. Federal regulators have been at odds with their state counterparts over a number of recent issues such as the regulation of mutual funds and brokerage-firm research.

At issue in the latest row is how best to protect small and often vulnerable borrowers from institutions that are already huge, and growing larger in an age of steady bank consolidation. The stakes in this debate are rising as an increasing number of national banks see the consumer market as a big area of growth, in some ways even bigger than the intensely competitive markets for corporate finance.

OCC statistics show that retail loans at the nation's 10 largest banks accounted for more than 50% of all their lending in 2003, up from roughly 20% in 1984. Many of those top banks are regulated by the OCC, including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. The OCC regulates 55% of the banking industry when measured by loans outstanding. The rest are monitored by a combination of various agencies, including the Federal Reserve and state governments.

Consumer groups said the move by the OCC effectively takes away the power of states to regulate the local operations of the biggest banks with some of the most powerful consumer-lending businesses. Of most concern to consumer groups, the OCC said its new rules govern not only the local offices of bank-holding companies but also the operating subsidiaries owned by those banks.

Those subsidiaries include the mortgage providers that large banks have been acquiring in recent years. Some of these mortgage units have been criticized for abusive lending practices, such as targeting unsophisticated borrowers with high-interest loans backed by housing, and then foreclosing on the home when the borrower defaults.

The OCC has maintained that it has proved repeatedly that it will crack down on national banks that engage in abusive lending practices. But it also said that national banks are rarely caught up in such shady practices. "There is scant evidence that regulated banks are engaged in abusive or predatory practices," Mr. Hawke said.

Critics say the OCC has found little evidence of predatory lending among the banks it regulates because it has only 1,800 examiners, who are more focused on the quality of the banks' lending portfolios than of their policies for interacting with consumers. By denying states the right to police banks, the agency makes it easier for banks to abuse their customers, the critics say.

"You are taking a huge number of enforcers off the beat," said Ed Mierzwinski, consumer program director for the consumer advocacy group U.S. PIRG. "This is a case where big business clearly wins by having fewer cops on the beat."

The OCC counters that consumers suffer when the states assert authority over nationally chartered banks because banks then must address differing state policies, making the business of providing credit to consumers more time-consuming and costly.

"If a bank has to comply with one set of rules in New York, another in Idaho, and yet another in Minnesota, it increases the costs to the banking industry," said Howard N. Cayne, a lawyer at Arnold & Porter, who has represented nationally chartered banks. "Those costs at the end of the day would be passed on to consumers."

Many state regulators resent OCC regulators, who aren't elected to office, codifying powers in regulations without congressional approval. "The right way to change our systems is to go through the legislative process, not through an unelected bureaucrat from Washington," said Diana Taylor, the Superintendent of the New York State Banking Department.

Legal experts expect the debate will be settled in the courts. A state attorney or some other state enforcement official will likely bring a case against a national bank, and the court will determine whether the state or the federal government has the right to bring the charges, effectively ending the debate.

The OCC says that legal precedents suggest it would win such a battle, a point that some critics concede, albeit grudgingly. "The courts have shown [federal regulators] too much deference," said Mr. Mierzwinski of U.S. PIRG.