Banks and the financial crisis

The financial crisis has entailed massive government support for banks and even for  companies like GE that are primarily not banks but are bank holding companies (GE owns a couple of small regional banks and has received enormous support through TARP). 

The public has not been too happy with the need to provide that kind of massive support to banksm while the banks continue their outsize compensation packages, increase lending costs for small businesses and individuals, and refuse to support legislation to permit modification of mortgage loans in bankruptcy.  (The inability of Congress to enact bankruptcy modification of mortgage loans is the most vivid evidence of the stranglehold that banks and insurers and other financial institutions have over Congress; it apparently takes relatively small campaign donations to guarantee a Congress that willingly puts big financial institution wishes above the views of ordinary Americans.)

So in that context, it is refreshing--and surprising--to see a divided Supreme Court today hand down a decision that will permit states to continue to use the courts to protect the little guys against national banks.  Andrew Cuomo won his case.  Cuomo v. Clearing House Association, LLC (No. finding that states can sue national banks to enforce the state's fair lending laws, in spite of a Controller of the Currency ruling that federal regulations preempted such state actions). Cuomo called the decision "a huge win for consumers" that will protect them "from predatory financial practices."  The American Bankers Association whined that regulation of banks would "make it more difficult [for national banks] to serve consumers."  See Cuomo vs. Clearing House Represents Victory for Taxapyers, Center for Responsible Lending (Jun 29, 2009); Court Allows States to Challenge National Banks, Washington Post (Jun 29, 2009)

Elliot Spitzer originally began the investigation of racially discriminatory lending practices, sending letters of inquiry asking for non-public information about mortgage policies and practices.  The Office of the Controller of the Currency and the Clearing House Association (formed by various national banks) sued to enjoin the AG's investigation and enforcement, claiming that the National Bank Act 12 USC section 184(a), as interpreted by the OCC in 12 CFR 7.4000(a)(2)(iv),  barred the states from enforcing their state predatory lending laws against national banks.  The AG argued that the OCC regulation violated the administrative procedure act and that the banks activities showed racial disparities that "established a prima facie case under the federal Fair Housing Act." 

The District Court agreed with the OCC that the investigation was preempted and with the Clearing House Ass'n that the Fair Housing law didn't create an exception. See 394 F. Supp 2d 620 (SDNY 2005). and 396 F.Supp. 2d 383 (SDNY 2005).  The Second Circuit deferred to the OCC under Chevron but held that the district court did not have jurisdiction on the FHA claim.  510 F.3d 105 (2d Cir. 2007).  The Supreme Court granted cert on Jan. 16, 2009.  The Cornell website includes a discussion of the various amici arguments in the case (with links to particular briefs), and the SCOTUS wiki includes even more.  Cuomo argued that the banking act did not intend to limit State enforcment of state banking laws, but rather was designed to prohibit the states from supervising the national banks through examinations.  Amici for Cuomo added that states have been more effective than the OCC in protecting consumers, and that the current crisis demonstrates the importance of such protection.  The Supreme Court affirmed in part, reversed in part today, with Scalia delivering the opinion of the court, joined by Stevens, Souter, Ginsburg and Breyer (ie, the liberal four + Scalia).  Thomas concurrent in part and dissented in part, with Roberts, Kennedy and Alito.  Supreme Court docket sheet.

Folks, if the banks want to serve consumers, they know how to do it.  The big banks are just using consumers as a shield on this issue, like they used the threat of higher mortgage rates as a shield on the bankruptcy modification of mortgage loans. It is very hard to believe that the big banks really give a damn (pardon my English) about the ordinary consumers. 

Of course, the case may not mean much, as the effort to cahnge financial services regulation proceeds.   But the Obama plan (for establishing a new agency that is charged with protection consumers) would cut back on preemption of state law, making the federal law "act as a floor, not a ceiling", according to a June 29 statement from the administration.

Comments

[banks]

Thank you for this article really a big help for everyone.