Supreme Court gives gift to predatory lenders

From Nathan Newman at TPM Cafe

In a blow to consumers, the Supreme Court ruled yesterday that mortgage lending subsidiaries of national banks are exempt from state regulation. Every state attorney general and bank regulator had urged the High Court to protect these state laws, especially in light of federal inaction in the face of abuse by predatory lenders.

But the Court in its Watters v. Wachovia decision, upheld the power of the Bush Office of the Comptroller (OCC) to pass regulations shutting down such state laws. Those federal decisions, as Progressive States discussed a few weeks ago, directly fed the predatory lending mortgage bubble and helped encourage the abuses that may lead to 2.2 million subprime borrowers facing foreclosure on their home loans.

Justice Stevens, in his dissent to the decision, blasted his fellow Court members for endorsing those executive decisions, since no new Congressional action had given the OCC guidance to undermine these state laws:

Never before have we endorsed administrative action whose sole purpose was to pre-empt state law rather than to implement a statutory command.

Stevens point was that while the federal government might have the power to preempt state laws, it should only do so when Congress has clearly authorized such preemption or where the exercise of existing federal laws leave "no room for additional state regulation." Clearly, given federal inaction, there was plenty of room for state regulation in this situation, so the Court's decision is a radical expansion of executive power to undermine state power at the whim of a federal regulator.

Congressman Barney Frank, who chairs the House Banking Commitee, expressed similar outrage at the court decision: "We have to act on this ...The controller has eliminated a whole bunch of state consumer laws with nothing to put in their place."

Hopefully, instead of just passing a few additional federal consumer protections, Congress will also restore state power to add its own protections as well.