The U.S. Supreme Court gives the OCC the power to do nothing whatsoever to regulate and oversee national bank subsidiaries

The Office of the Comptroller of Currency is the federal administrative agency charged with overseeing nationally-chartered banking institutions such as Wells Fargo, US Bank, and in this case, Wachovia Bank. However, nobody has been able to say that line without smirking for years, because whatever the OCC does, it isn’t overseeing banks or enforcing regulatory laws.

But what about non-nationally-chartered banks? What about non-nationally-chartered banks owned by nationally-chartered banks?

Let’s find out: Watters v. Wachovia Bank, N.A.. In brief, Wachovia sued the State of Michigan because Michigan didn’t want to have to register as a mortgage lender in Michigan. Wachovia claims it was complying with Michigan laws; it just didn’t want to register there. The OCC swooped in and issued regulations preventing any state from regulating subsidiaries of nationally-chartered banks even though those subsidiaries are not also nationally-chartered banks.

The case ended up in the Supreme Court, which decided that non-nationally-chartered banks owned by nationally-chartered banks are not subject to state law, even though non-nationally chartered banks that are not owned by nationally-chartered banks are subject to state laws.

Confused? Me too, but here is the gist of it. What this really means is that if, say, Wachovia Mortgage writes you a fraudulent loan, you can’t sue them under state law. This is a big problem, because federal law currently provides little or no recourse for common scams like equity stripping and the subprime lending fiasco now making headlines, where major lenders may write dozens of loans to an equity stripper or broker that the lender knows or should know are funding consumer fraud. And the OCC isn’t likely to do anything, so consumers may be left without recourse. Ouch.

(For the record, yes, some subprime lenders are not nationally-chartered banks or their subsidiaries. But some are.)