[Corp. Watch] Big Finance relies on Feds to fend off state regulations

[Corporation Watch]

Obama Sides with Banks Accused of Racism

  The Obama administration is defending lenders that
  allegedly bilked minority customers -- what gives?

By Stephanie Mencimer

(Mother Jones, April 7) -- A number of big national banks stand  
accused of systematically bilking black and Latino borrowers. And the  
administration of our first black president is siding with the banks.

	At the end of April, the Obama administration will go before the U.S.  
Supreme Court to argue that those banks -- including bail-out  
recipients Bank of America, Citi, Wells Fargo, and JPMorgan Chase --  
should be allowed to duck a state investigation into their lending  
practices.

	If that sounds like the politics of the past, it is. The Obama  
administration has opted to maintain the stance of the Bush  
administration --one opposed by the NAACP and other major civil rights  
groups.

	And it won't be some Bush holdover making the arguments in Cuomo v.  
The Clearing House Association (an industry group whose membership  
includes the world's largest banks).

	Instead, the banks will be defended by the office of Obama's new  
solicitor general, former Harvard Law School dean Elena Kagan, whom  
some conservatives have branded a "radical leftist" because of her  
record opposing military recruitment on college campuses.

	The case got its start in 2005, when then-New York Attorney General  
Eliot Spitzer discovered that many banks operating in his state were  
issuing a disproportionate number of high-interest loans to African  
Americans and Hispanics.

	Invoking state anti-discrimination laws, Spitzer wrote to those  
banks, politely asking for more information about their lending  
practices. He didn't even issue a subpoena.

	Rather than respond to the request, the banks sued Spitzer. They  
argued that they were legally entitled to blow him off because federal  
banking law preempted the state investigation—that is, only the feds  
could make such a request, not some lowly state attorney general (AG).

	To make their case, the banks sought help from the Bush  
administration, through the Office of the Comptroller of the Currency  
(OCC), a little-known federal bank regulator that over the past decade  
has become increasingly active in helping those banks and their  
subsidiaries quash state efforts to rein in abusive predatory lending  
practices.

	The OCC joined the banks in the case as a plaintiff, asserting that a  
Civil War-era banking law made it the only sheriff in town. Only the  
OCC, it argued, could force big national banks like Bank of America  
and Wells Fargo to comply with state consumer protection laws like  
those banning racial discrimination in lending.

	With the OCC's backing, the banks prevailed in the trial court and  
the U.S. Court of Appeals for the 2nd Circuit. New York's current AG,  
Andrew Cuomo, has appealed the case to the Supreme Court, which will  
hear oral arguments in late April. Kagan's office will be representing  
the OCC.

	The administration's position in Clearing House stands in sharp  
relief to other parts of the U.S. government, where financial system  
regulators have recently come out in opposition to shielding banks  
from state consumer protection laws and enforcement.

	In March, on the same day Kagan was confirmed as solicitor general,  
Federal Deposit Insurance Corporation (FDIC) chair Sheila Bair, a Bush  
appointee, told the Senate banking committee that


> "it is time to examine curtailing federal pre-emption of state  

> consumer protection laws … [I]t has now become clear that abrogating  

> sound state laws, particularly regarding consumer protection,  

> created an opportunity for regulatory arbitrage that frankly  

> resulted in a race-to-the-bottom mentality."


	Yet in their briefs in Clearing House, lawyers for the OCC and  
Obama's solicitor general say that the OCC has used its authority  
appropriately and has done a terrific job of protecting consumers from  
abusive bank practices. But it's a dubious claim at best.

	Until 2008, the OCC had never taken a public consumer protection  
action against a major bank. In fact, the OCC's light touch with  
national banks prompted many state-chartered banks to switch their  
charters just so they could evade stricter state regulation.

	In an amicus brief in Clearing House, lawyers for consumer advocates  
cite the example of Capital One, a company whose deceptive and unfair  
credit card practices were investigated for several years by the West  
Virginia attorney general.

	Three years into the investigation, the bank changed its status from  
a state-charted bank to an OCC-chartered bank. Less than two weeks  
later, Capital One asked a federal court to halt the attorney  
general's investigation, arguing that the OCC was now the only entity  
that could initiate such a probe.

	The judge who heard the suit recognized that the bank was simply  
trying to evade the attorney general. Nonetheless, he believed the law  
required him to stop the state investigation.

	Over the years, the OCC has tried to prevent state consumer  
protection actions against all sorts of shady practices. For instance,  
it has intervened to prevent states from cracking down on  
telemarketing fraud, misbehavior by car dealerships, an unlicensed  
trade school, an air-conditioning company, and a mall that issued  
giftcards -- all because each of these entities had a financial  
relationship with OCC-chartered banks.

	The OCC's record of enforcing anti-discrimination laws like those at  
the heart of the Clearing House case is equally dismal. In their  
amicus brief, consumer lawyers note that the OCC has brought only four  
formal enforcement actions under the Equal Credit Opportunity Act  
since 1987.

	And during the Bush administration, it didn't refer a single  
discriminatory mortgage lending case to the Justice Department. Yet in  
her brief, Kagan argues that the OCC "vigorously enforces fair lending  
laws against national banks."

	Kagan's brief appears as if it were largely written during the last  
administration, which it no doubt was. It touts the supposedly great  
work done by the OCC's Customer Assistance Group, which Kagan and the  
OCC say has facilitated the recovery of tens of millions of dollars by  
injured consumers.

	Back in 2005, I filed a Freedom of Information Act Request with the  
OCC for information about how many people in the Customer Assistance  
Group actually investigated and resolved consumer complaints.

	The answer I eventually got (many, many months later) was three -- in  
an agency that fields more than 70,000 complaints a year from bank  
customers.

	In years past, the Customer Assistance Group has recouped less than  
$8 million annually for consumers -- a drop in the bucket compared to  
the billions banks collect via abusive credit card practices or  
overdraft fees.

	By comparison, the state attorneys general that the OCC has tried to  
neutralize have successfully gone after many lending institutions for  
sleazy practices and recouped sums that dwarf anything the OCC has  
recovered.

	During the past decade, attorneys general in various states banded  
together and settled cases against Household and Ameriquest Mortgage  
Company, once some of the nation's biggest sub-prime lenders.

	The AGs recouped more than $800 million for consumers, but they were  
often prevented from bringing similar cases against big banks because  
of OCC interventions. And in Clearing House, the Obama administration  
is now defending the OCC's turf-conscious obstructionism.

	The administration's brief in Clearing House was due only six days  
after Kagan was confirmed. Reversing course in a case this far along  
would have been both legally and administratively problematic for her  
and the administration.

	But consumer advocates have seen a few hints between the lines of her  
brief that the administration intends to change its regulatory policy  
at the OCC.

	It is hard to imagine that Obama would really want to usurp the  
states and remake the OCC as the nation's pre-eminent financial  
consumer protection agency.

	That would make the federal banking regulator ultimately responsible  
for policing thousands of unscrupulous car dealers, air-conditioning  
installers, trade schools, or even mall gift-card programs, simply  
because they had financing relationships with national banks.

	Not only does the OCC not have the resources to do all that; it has  
enough on its plate right now just keeping the banks afloat. As Daniel  
Mosteller, litigation counsel to the Center for Responsible Lending,  
observes, "Is the OCC really going to start investigating malls?"