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CU urges Obama administration to let states take greater role overseeing banks

States were blocked from taking tougher action against banks under Bush

February 4, 2009

By overnight mail and facsimile transmission

The Honorable Timothy F. Geithner
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220-0002

re: Obama Administration’s Position on Whether States May Protect Consumers
Against National Banks’ Predatory Lending Is Due on February 25,2009, in
United States Supreme Court

Dear Secretary Geithner,

On behalf of Consumers Union, the nonprofit, independent publisher of Consumer Reports magazine,’ I convey our congratulations on your appointment as Secretary of the Treasury. As you tackle the financial crisis and challenges confronting our nation, we look forward to working closely with you and your staff on initiatives that can improve the financial well-being of America’s consumers and, in the words of President Obama, remedy a massive “failure of oversight and accountability [that] has the potential to devastate our entire economy.:”

I write concerning one significant decision you face now, with both short-term and long-term consequences. On February 25, 2009, the United States will file a brief in the United States Supreme Court in a case that will decide the ability of states to monitor and enforce mortgage-lending protections, anti-discrimination laws, and other important consumer protections in the financial sector. We respectfully urge you to consider immediately and carefully what is at stake, to reverse the position of the United States, and to direct that the Office of the Comptroller of the Currency, a bureau within the Department of the Treasury, rescind the regulations at issue in the case.

In Cuomo v. The Clearing House Association, L.L.C. and Office of the Comptroller of the Currency, No. 08-453, New York’s Attorney General sought to investigate whether the residential mortgage-lending practices of several nationally chartered banks and their operating subsidiaries doing business in New York were racially discriminatory because they were issuing high-interest home mortgage loans in significantly higher percentages to African-American and Latino borrowers than to White borrowers. The Office of the Comptroller of the Currency (OCC) and a consortium of national banks sued to prevent New York’s Attorney General from enforcing those anti-discrimination laws against national banks.

The OCC and banks cited a recent OCC regulation that purports to prevent states from enforcing state laws against national banks and their operating subsidiaries, even when the state laws are not substantively preempted. Unfortunately, the Second Circuit deferred to the OCC’s regulation and interpretation of the National Bank Act.’ New York’s Attorney General filed a petition for writ of certiorari, and the remaining 49 states’ attorneys general filed an amicus brief urging the United States Supreme Court to reverse this egregious result. The Court granted review on January 16, and the government’s brief is due February 25,2009.

For the past four years and more, the Office of the Comptroller of the Currency has been siding with banks against consumers and against states, championing deregulatory and minimal standards against states that have been trying to enforce higher standards for banks and their operating subsidiaries.

When states tried to monitor mortgage lending and to protect consumers, the OCC instructed the banks that they “should contact the OCC in situations where a State official seeks to assert supervisory authority or enforcement jurisdiction over the bank.” Banks could not refuse such an invitation, and complained to the OCC about state efforts to investigate or enforce state laws against the bank or its operating subsidiaries. The OCC responded with letters to banks and state banking agencies asserting that the states had no authority to investigate or enforce state laws against national banks and their operating subsidiaries, that only the OCC could enforce such laws against the banks, and that the banks need not comply with the state laws.

For the complete letter, click here or go to: http://www.consumersunion.org/pdf/Geithner-Ltr-209.pdf

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