Supreme Court 5-4 For Consumers

New York State Attorney General Andrew Cuomo won a stunning decision when Supreme Court Justice Antonin Scalia abandoned his conservative philosophy  and cast the deciding vote in a 5-4 decision that allows states to enforce their consumer protection laws against federally chartered banks.  In the surprise move, the High Court’s most conservative member, Justice Scalia joined the four most liberal members of the Supreme Court in overturning a long-standing OCC regulation.

The decision supports consumer protection and strikes a blow to the country’s largest banks as well as to the Office of the Comptroller of the Currency (OCC), which previously barred state oversight of federally chartered bank lending practices.  The decision immediately gives regulators greater power to review and police big bank lending policies. 

Scalia’s decisive vote was based on his belief that it is “bizarre” for the OCC to block states from enforcing their valid consumer protection laws against banks that are nationally chartered.  The vote countered a 2007 decision regarding irregular mortgage lending practices utilized by Wachovia Bank.  The 2007 ruling pertained specifically to mortgage lending while Cuomo’s decision deals with consumer protection.

New York Had Support

Cuomo has been a highly visible critic of Wall Street and the banking industry’s lending practices.  The Attorney General has led intense investigations into investment irregularities and is a strong proponent of consumer protection. 

Cuomo had the support of all 49 other states and the District of Columbia.  Cuomo’s argument was that by striking the OCC rule protecting banks, the Court was not unfairly burdening banks, who must now defend themselves against multiple state lawsuits. 

The group of banks that supports the OCC rule is named The Clearing House Association, LLC.  The Clearing House has long supported the “principle of uniformity in national bank enforcement.”

Citigroup, JPMorgan Chase and others

Cuomo’s action was actually initiated by controversial, former Attorney General Eliot Spitzer, who began the inquiry into controversial lending practices provided by Citigroup, HSNC Holding Pic, JPMorgan Chase and Wells Fargo & Co.  Spitzer asserted that the mortgage lending practices were significantly different for blacks than they were for whites.  Blacks had an unusually high percentage of high-interest mortgages. 

Cuomo has taken the position that the banking and economic crisis was caused by reckless subprime mortgage lending and avoidance of consumer protection laws.  Cuomo is pushing for more regulation and regulation with backbone.

Michael Calhoun of the Center for Responsible Lending called Cuomo’s victory “a victory for taxpayers who have suffered enormously as a result of abusive practices in all types of lending.”

Cuomo Ruling Affects Consumer Protection Agency

The OCC ruling had prevented states from protecting consumers through regulation.  The Supreme Court decision is apt to change the look of the Obama Administration’s push for a new Consumer Financial Protection Agency.  The creation of this new agency is an important component in Obama’s financial regulation overhaul.

The Consumer Financial Protection Agency is intended to combine oversight of credit cards, mortgages and other lending products.  All regulation would be administered by one department rather than by the ten agencies currently providing oversight.  Cuomo’s victory now interjects state protection laws into a new equation.