Supreme Court Hears Case on Power to Examine Bank Lending Practices
U.S. states are arguing that they should be able to investigate banks for racial discrimination in lending, despite claims from the federal government that such financial oversight is its exclusive domain.
The state of New York, with the backing of the other 49 states, wants the Supreme Court to overturn a federal appeals court decision that blocks states from investigating the lending practice of banks. Arguments are scheduled for Tuesday, and the court is expected to issue opinions on other cases.
Eliot Spitzer, then New York's attorney general, wanted to investigate whether minorities were being charged higher interest rates on home mortgage loans, a practice that is prohibited under various state and federal laws. But a federal judge said Spitzer could not enforce state fair lending laws against national banks or their operating subsidiaries by issuing subpoenas and bringing enforcement actions against them.
The 2nd U.S. Circuit Court of Appeals in New York City upheld that decision, saying responsibility for such investigations rests with the comptroller's office, a part of the Treasury Department, and other federal agencies.
Both the Clearing House Association, which represents the banks, and the comptroller said the attorney general was interfering with their supervisory powers.
But New York argues that the federal government doesn't have the manpower or the expertise on the ground to be able to do oversight correctly. The federal government "is not designed or equipped to enforce states' consumer protection laws against national banks, has no record of doing so, and has shown no intention of changing its traditional indifference," New York Solicitor General Barbara Underwood said in court papers.
Spitzer was New York's attorney general until he became governor in 2007. He resigned in a sex scandal.
The states supporting the New York appeal said the lower courts' decision "interferes with the states' ability to enforce their own laws and protect their own citizens."
"Moreover, the current economic crisis, caused in large part by reckless subprime mortgage lending, has demonstrated the need for consumer protection and regulatory oversight in the area of mortgage lending," the states argued.
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