Supreme Court Ruling on State Regulation of Bank Lending Called a Victory for Consumers

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New York, June 29, 2009 – A U.S. Supreme Court ruling Monday that allows states to probe whether national banks discriminated in their mortgage-lending decisions was hailed as a victory for consumers and state prosecutors trying to protect them.
In a 5-4 decision, the Court ruled that states could enforce their own fair-lending laws, and were not preempted by federal regulations.
“Today's decision is a stinging defeat for the large banks and federal regulators who have worked for years to stop states from enforcing consumer protection and anti-discrimination laws,” said James Tierney, Director of the National State Attorneys General Program at Columbia Law School.
New York had sought to probe whether national banks discriminated against minorities trying to obtain mortgages after an investigation in 2005 by then-Attorney General Eliot Spitzer determined blacks and Hispanics receive more subprime mortgages than white borrowers.
However, the federal Office of the Comptroller of the Currency and a consortium of banks challenged the investigation, as going beyond the state’s jurisdiction. They argued it would also cause confusion if the federal government were to probe the same issue.
“It was shameful that the Comptroller and the banks even took this position in the first place,” said Tierney, a former Attorney General in Maine. “Trying to fight a turf battle when the subprime mortgage crisis was out of control was dead wrong.”
Justice Antonin Scalia noted in the majority opinion that while federal law does allow the state’s some jurisdiction over banks, the Comptroller was effectively trying to prevent the states from being able to enforce those laws as they applied to national banks.
“The bark remains, but the bite does not,” Scalia wrote. “The dissent admits, with considerable understatement, that such a result is ‘unusual.’ ‘Bizarre’ would be more apt.”
The other 49 states had backed New York’s position, which Tierney said was expected given that states have long stood as aggressive watchdogs over banks that violated fair-lending laws.
“The states are now back in the game of fulfilling their traditional role of standing up for consumers,” Tierney said.
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