In case you missed it over Valentine’s Day, Elliot Spitzer, consumer rights hero, wrote a great J’accuse piece in the Washington Post . In the piece, Spitzer rightfully accuses the Bush Administration through the OCC of actually making the predatory lending problem worse by first trying to ignore the problem, then when the States Attorney Generals started taking action, Bush & Co. used the OCC to block the States from not only enforcing their own laws, but also from enforcing even federal laws.
Spitzer states that in 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
The OCC’s response, shift the blame: Nothing the OCC has done has prevented the states from regulating and preventing abuses among the lenders that they license – lenders that are the source of most of today’s problems. The states have ample authority – as well as clear responsibility – to set standards for these lenders and enforce them. It defies logic to argue that preemption was an impediment. National banks are bound to obey the strict standards enforced by the OCC everywhere they operate – even in states that had far less rigorous standards. The states should have applied equally rigorous standards to the non-bank lenders that were responsible for the bulk of the problems.
While state financial institutions certainly played a role in this mess, it was a small part. The real players were the national lenders and their affiliates.