Predatory lending made worse by Bush Administration

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.

  • NIck Slade

    I agree that the consumer credit as a whole is a huge mess which is starting to fray. We have noticed a marked increase in calls about debt collector harassment. I sure sign that people are having a harder time and the debt collectors are having to “try harder.” But in addition to the fact that the credit laws are written to favor banks and the OCC preemption works to protect banks rather than regulate them, two thing are likely to prevent any real change through the legal system. First, class-action reform made it harder to bring them and the changes the credit card industry forced through to the bankruptcy laws make it harder.

    Legislative change is though only real long term hope.

  • Anthony Lorizio

    Consumers were sold out by this administration.

    While the sub-prime housing lending debacle is getting all the news since the “BUBBLE BURST,” there is another bubble expanding.

    Consumer credit laws have been written by the very same special interest bankers that created the housing loan crisis. While this writer can not forecast what the bursting bubble will look like, should there be a real interruption in the repayment of consumer debt something will burst.

    The feeding frenzy on the part of the Bush administration’s banking cronies will come to an end. While they may have had brilliant legal minds create a predatory system to increase profits, one is sure that in the gouging they missed some technicality. Watch the consumer credit/debt domain as a fertile source of class action suits in the forthcoming months. As the saying goes, what goes around, comes around!