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States can play role in regulating banks, court finds
Kevin G. Hall - McClatchy NewspapersIssue date: 6/25/09 Section: Real News
Consumer advocates were elated.
"This Supreme Court decision is a victory for taxpayers, who have suffered enormously as a result of abusive business practices in all types of lending," said the Center for Responsible Lending, a consumer advocacy organization based in Durham, N.C. "This decision will help to restore confidence in the financial services industry and the national economy."
Congress has already been studying changes to pre-emption rules as part of President Barack Obama's proposed revamp of financial regulation. Obama proposes creation of a Consumer Financial Protection Agency, which would have the power to write and enforce rules on mortgage lending practices. The proposal expressly states that these rules would be a floor nationwide, and that states could write their own tougher rules.
At issue in Cuomo v. Clearing House Association is whether the Office of the Comptroller of the Currency, the chief regulator of national banks, erred in shutting down New York's efforts to question banks about predatory lending practices.
The OCC convinced lower courts that then-New York Attorney General Eliot Spitzer had overstepped into federal territory when he sought non-public information about the lending practices of federally regulated banks. Forty-nine states joined New York in appealing the lower court ruling.
While siding with the states, the Supreme Court ruling clarified that they can't issue their own subpoenas and instead must pursue enforcement action through courts.
"An attorney general acting as a civil litigant must file a lawsuit, survive a motion to dismiss, endure the rules of procedure and discovery, and risk sanctions if his claim is frivolous or his discovery tactics abusive," Scalia's opinion said. (Discovery is the pre-trial phase in which each party in a case can seek documents and other evidence from the other.)
The Bush administration argued that it had to the right to pre-empt any state effort to regulate. But after winning that argument, the OCC failed to address the issues of predatory lending that Spitzer, and later his successor Andrew Cuomo, sought to address.
"This Supreme Court decision is a victory for taxpayers, who have suffered enormously as a result of abusive business practices in all types of lending," said the Center for Responsible Lending, a consumer advocacy organization based in Durham, N.C. "This decision will help to restore confidence in the financial services industry and the national economy."
Congress has already been studying changes to pre-emption rules as part of President Barack Obama's proposed revamp of financial regulation. Obama proposes creation of a Consumer Financial Protection Agency, which would have the power to write and enforce rules on mortgage lending practices. The proposal expressly states that these rules would be a floor nationwide, and that states could write their own tougher rules.
At issue in Cuomo v. Clearing House Association is whether the Office of the Comptroller of the Currency, the chief regulator of national banks, erred in shutting down New York's efforts to question banks about predatory lending practices.
The OCC convinced lower courts that then-New York Attorney General Eliot Spitzer had overstepped into federal territory when he sought non-public information about the lending practices of federally regulated banks. Forty-nine states joined New York in appealing the lower court ruling.
While siding with the states, the Supreme Court ruling clarified that they can't issue their own subpoenas and instead must pursue enforcement action through courts.
"An attorney general acting as a civil litigant must file a lawsuit, survive a motion to dismiss, endure the rules of procedure and discovery, and risk sanctions if his claim is frivolous or his discovery tactics abusive," Scalia's opinion said. (Discovery is the pre-trial phase in which each party in a case can seek documents and other evidence from the other.)
The Bush administration argued that it had to the right to pre-empt any state effort to regulate. But after winning that argument, the OCC failed to address the issues of predatory lending that Spitzer, and later his successor Andrew Cuomo, sought to address.
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