High Court Rules States Can Enforce Fair Lending Laws
State attorneys general won a major turf war in the U.S. Supreme Court on Monday as the justices held that states may enforce their anti-discrimination and consumer protection laws against national banks.
The high court, in a 5-4 ruling, struck down a regulation issued by the chief federal regulator of national banks that pre-empted the states' power to enforce those laws. Justice Antonin Scalia, writing for the majority, said the regulation was an unreasonable interpretation of the National Bank Act.
"This is important because the federal government has not historically enforced these state consumer-protection and fair-lending laws. States have," said David Frederick, a partner at Washington's Kellogg, Huber, Hansen, Todd, Evans & Figel who filed an amicus brief supporting the states on behalf of the National Association of Realtors. "This decision affirms the critical role states play here."
The case -- Cuomo v. Clearing House Association (pdf) -- was followed closely not only by the banking industry but by major civil rights and consumer organizations, and public and private state regulatory groups.
"As the court clearly recognized, this is a time when more -- not less -- enforcement of fair-lending laws is essential," said John Payton, president and director-counsel of the NAACP Legal Defense and Educational Fund in a statement. "Nothing justifies the federal government's complete failure to enforce both state and federal anti-discrimination laws against financial institutions. Civil rights always benefit when both states and the federal government work aggressively to curb discrimination."
But one industry group, the Financial Services Roundtable, said the decision will create "a patchwork of 50 state laws," destroying the efficiencies of the national market.
"We are worried about the effect that this ruling could have on the markets," said Richard Whiting, the group's executive director and general counsel. The decision, he said, "hinders the ability of financial services firms from conducting business in the United States. Even worse, it will cause confusion for consumers, especially those who move from state to state."
The high court case began in 2005 when then-New York Attorney General Eliot Spitzer sought nonpublic data and information regarding the mortgage lending practices of several national banks and their subsidiaries. Publicly reported data by those banks showed significantly higher-interest, residential mortgage rates charged to minorities compared with white borrowers and that suggested a prima facie case of race discrimination in violation of state and federal fair-lending laws.
The Office of Comptroller of the Currency, asserting exclusive "visitorial" authority over national banks, and the Clearing House, a consortium of national banks, successfully moved in federal court to enjoin the state's data request.
At issue in the high court challenge, brought by New York Attorney General Andrew Cuomo, was a 2004 regulation that said states had no right "to inspect, superintend, direct, regulate or compel compliance by a national bank with respect to any law, regarding the content or conduct of activities authorized for national banks under Federal law."
Writing for the majority, Scalia acknowledged some "ambiguity" in the National Bank Act's term "visitorial" powers. But he said the Court's cases have always understood the term as the comptroller's right to oversee corporate affairs, "quite separate from the power to enforce the law." The act, he said, pre-empts states from the former, not the latter.
"If the Comptroller's exclusive exercise of visitorial powers excluded law enforcement by the States, it would also preclude law enforcement by federal agencies," Scalia said, adding, "Of course it does not." New York, however, did not have the right to enforce its law through an administrative act or by threat of subpoena, according to the majority. States must pursue enforcement in court.
"This distinction was recognized for a long time," said Arthur Wilmarth of George Washington University Law School, who authored an amicus brief supporting Cuomo. "It was the OCC that tried to disturb that balance when it adopted this rule in 2004 and suddenly said states no longer can enforce applicable state laws even through the courts."
Justice Clarence Thomas, joined by Chief Justice John Roberts Jr. and justices Anthony Kennedy and Samuel Alito Jr., dissented, saying the text, structure and history of "visitorial powers" supported the comptroller's "reasonable" interpretation.