The U.S. Supreme Court overruled a decision by the Bush Administration's Office of the Comptroller of the Currency which barred state enforcement of its own consumer protection laws. Some states have significant anti-predatory lending laws but the financial conglomerates were complaining to the Bush Administration that some states were busting their chops about their lending practices. So, Bush Administration responded:
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
Here is how James Cox, law professor from Duke University described today's decision:
"This is a real win for consumers," said James Cox, a law professor at Duke University in Durham, North Carolina. "It opens up a vast area for state and local regulators, and is a serious loss for the banking industry. One would hope banks will become more circumspect about their activities, especially given how they're being regulated like never before."
I don't have any confidence that financial conglomerates will be more circumspect about their lending practices. What they will do is flood state houses with lobbyists and U.S. congress for legislative relief. Heck, the Obama Administration's OCC was disappointed in the decision:
John Dugan, the comptroller of the currency, said his office was disappointed with the ruling, but is committed to strong enforcement of fair lending laws, and ensuring fair access to financial services and fair treatment of consumers.
The Obama administration had urged support for the OCC regulation, as had the Bush administration.
The initial OCC ruling handcuffed state regulators who tried to enforce their more strict state consumer protection laws. Professor Cox went as far as to say:
"The preemption of state laws has been a key cause of the credit crisis," he said. "It prevented states from doing more regulation in the area of subprime mortgages and other debt that consumers get in over their heads."
Add this to the list of de-regulation fiascoes of the last 20 years. It is a shame that President Obama would want his fingerprints on this one. He really should stop listening to Summers and Geithner.