New York, April 9, 2010
––Yesterday, Comptroller of the Currency John C. Dugan and former Comptroller John D. Hawke testified to the Financial Crisis Inquiry Commission (FCIC) that federal preemption of state anti-predatory lending laws in 2004 had little effect on the developing housing crisis. In fact, two reports recently released by the University of North Carolina’s Center for Community Capital indicate that strong state anti-predatory lending laws at the state level had a significant effect in reducing foreclosures. (Dugan’s and Hawke’s testimonies are available for viewing at the FCIC’s website
According to the study, funded by the National State Attorneys General Program
at Columbia Law School, by 2005, more than half of U.S. states had anti-predatory lending laws. The beneficial effects of state consumer protection regulations were undermined by federal preemption:
- states with strong anti-predatory lending laws exhibited significantly lower foreclosure risk than other states. A typical state law reduced neighborhood default rates as much as 18 percent.
- within the same states, lenders exempted by federal laws had considerably higher rates of risky loan features and subsequent mortgage defaults than lenders who were still subject to tougher state laws.
Hawke suggested in his testimony that critics of federal preemption were motivated by a "grab for power." However, data gathered from a comprehensive national review of mortgage loans show that preemption diluted important consumer protection standards that some states had enacted. “In contending that the preemption of state mortgage regulations had little effect on the current housing turmoil, Dugan and Hawke have made an intellectually indefensible attempt to rewrite history in order to absolve themselves of the clear culpability that their preemption policies visited on millions of American families,” said James E. Tierney, Director of the National State Attorneys General Program, and former Attorney General of the state of Maine.
According to the UNC study, “As Congress prepares to enact sweeping financial system reforms and determine whether federal regulators can continue exempting its lenders from tougher state regulations, they should first carefully consider the impact of this policy.”
The complete reports are available at www.ccc.unc.edu/preemptioneffect
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