Supreme Court Backs Consumers
by Hiland Doolittle
New York State Attorney General Andrew Cuomo, son of former Governor Mario Cuomo, won a stunning decision when Supreme Court Justice Antonin Scalia delivered the deciding vote in a 5-4 decision that allows states to enforce their consumer protection laws against federally chartered banks. In a surprise move by the High Court’s most conservative member, Justice Scalia joined the Court’s four most liberal members in support of the decision overturning along standing OCC regulation.
The decision boosts consumer protection and strikes a blow to the country’s largest banks and to the Office of the Comptroller of the Currency (OCC), which previously barred state oversight of federally chartered bank lending practices. This position limited the effectiveness of state’s consumer protection laws. The decision immediately gives regulators greater power to review and police big bank lending policies.
James Cox, a law professor at Duke University, characterized the decision; “This is a real win for consumers. It opens up a vast area for state and local regulators and is a serious loss for the banking industry. One would hope banks would become more circumspect about their activities, especially given how they’re being regulated like never before.”
Scalia’s decisive vote was based on his belief that it is “bizarre” for the OCC to block states from enforcing their valid consumer protection laws against banks that are nationally chartered. The vote countered a 2007 decision regarding irregular mortgage lending practices utilized by Wachovia Bank. The 2007 ruling pertained specifically to mortgage lending while Cuomo’s decision deals with consumer protection.
New York Supported by 49 States
Cuomo has been a highly visible critic of Wall Street and the banking industry’s lending practices. The Attorney General has led intense investigations into investment irregularities and is a strong proponent of consumer protection.
Cuomo had the support of all 49 other states and the District of Columbia. Cuomo’s argument was that by striking the OCC rule protecting banks, the Court was not unfairly burdening banks, who must now defend themselves against multiple state lawsuits.
The OCC was joined by more than a dozen big banks in vigorously opposing the change. John Dugan, the comptroller of the currency, reported that his office was disappointed by the ruling. Duggan confirmed that the OCC will remain committed to strong enforcement of fair lending laws. Duggan will continue to assure fair access to financial services and fair treatment to consumers.
The group of banks that supports the OCC rule is named The Clearing House Association, LLC. The Clearing House has long supported the “principle of uniformity in national bank enforcement.”
Citigroup, JPMorgan Chase and others
Cuomo’s action was actually initiated by controversial, former Attorney General Eliot Spitzer, who began the inquiry into controversial lending practices provided by Citigroup, HSNC Holding Pic, JPMorgan Chase and Wells Fargo & Co. Spitzer asserted that the mortgage lending practices were significantly different for blacks than they were for whites. Blacks had an unusually high percentage of high-interest mortgages.
Cuomo has taken the position that the banking and economic crisis was caused by reckless subprime mortgage lending and avoidance of consumer protection laws. Cuomo is pushing for more regulation and regulation with backbone.
While the big banks opposed the ruling, Cuomo’s action drew heavy support from real estate brokers, state banking officials and consumer rights groups. Cuomo continued to pursue the change despite being ruled against at two lower court levels.
Duke’s law professor Cox said the ruling gives states “bully pulpit” power, meaning that “even without subpoena power they can still hold press conferences and take steps to sway public opinion.”
Michael Calhoun of the Center for Responsible Lending called Cuomo’s victory “a victory for taxpayers who have suffered enormously as a result of abusive practices in all types of lending.”
Cuomo Ruling Helps Obama
The OCC ruling had prevented states from protecting consumers through regulation. The Supreme Court decision is apt to change the look of the Obama Administration’s push for a new Consumer Financial Protection Agency. The creation of this new agency is an important component in Obama’s financial regulation overhaul.
The Consumer Financial Protection Agency is intended to combine oversight of credit cards, mortgages and other lending products. All regulation would be administered by one department rather than by the ten agencies currently providing oversight. Cuomo’s victory now interjects state protection laws into a new equation.
Washington observers were undecided about the full impact of the ruling on the Administration’s plans. The need for a new pro-consumer agency may not be as great as it was prior to Monday’s decision.
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About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
