SUPREME COURT: BANKS CAN'T HIDE BEHIND NATIONAL LAW.

Via Pat G., some underappreciated news from yesterday's release of Supreme Court decisions: The Court ruled 5-4 that state attorneys general have the right to investiagate nationally chartered banks for violating consumer protection laws. Previously, banks monitored by certain national regulators like the Office of Comptroller of Currency did not come under the jursidiction of state officials.

This all comes from a case argued by NY AG Andrew Cuomo, crusading as always -- what do they give those New York AGs to drink up there, anyway? Answer: An incredible jurisdiction and a huge media spotlight. Cuomo wanted to see if national banks were engaging in discriminatory practices by funnelling minorities into dangerous sub-prime loans. Fannie Mae estimates that more than half of sub-prime borrowers qualified for prime loans; many were minorities suffering under redlining practices. The map to the right (click for a larger version) shows the distribution of foreclosures in New York City; foreclosures are most dense where minorities are concentrated, in large part because of these practices.

But when Cuomo tried to look into the problems, the banks told him that their national regulator preempted any state efforts to monitor their business. Since the national regulator, the OCC, didn't really do much at all, it was licensce to behave poorly. But now the OCC is set to be shuttered under the Obama administration's financial regulation plan, and Cuomo has free reign to protect the consumers of his state thanks to the Supreme Court. Good stuff! This is part of a general trend in government against federal preemption; the administration is trying to make consumer protection laws into a floor, not a ceiling, and with this decision -- with the ever-Federalist Antonin Scalia joining the court's four liberals -- we have some judicial confirmation of the strategy.

Further Reading: Going After the Perpetrators of the Housing Bubble. State AGs are going after banks, and this is how they do it.

-- Tim Fernholz
Map courtesy NEDAP