States should be able to enforce consumer protection regulations that apply to all banks that operate within their borders, according to Consumers Union, the nonprofit publisher of Consumer Reports. The group urged Treasury Secretary Timothy Geithner in a letter Thursday to rescind Bush Administration-era regulations, that according to the group’s statement, have prevented states from protecting consumers from many of the mortgage lending abuses that contributed to the current foreclosure crisis. “While federal regulators were asleep at the switch, state agencies were blocked from taking more aggressive action to protect consumers,” said Mark Savage, senior attorney with Consumers Union. “It’s clear we need more cops on the beat. The Obama Administration should make sure states aren’t prevented from addressing financial industry abuses…” In its letter to Geithner, Consumers Union called on the Treasury Secretary to repeal a set of regulations adopted by the Office of the Comptroller of the Currency in 2004 that prevent states from enforcing state laws against national banks and their operating subsidiaries. The role of states in enforcing existing laws applying to national banks is a key issue in the debate over the effective regulation of the financial industry, said the consumer group, and is at the heart of a case now before the U.S. Supreme Court. In Cuomo v. The Clearing House Association, L.L.C. and the Office of the Comptroller of the Currency, the Court will decide if the New York Attorney General has the right to investigate whether several national banks discriminated against African American and Latino borrowers by charging them significantly higher mortgage interest rates. New York was prevented from investigating the banks after the OCC sued the state and cited its preemption regulation to argue that the AG didn’t have the authority to take such action. In a case decided by the U.S. Supreme Court last year against Michigan, the OCC sided with Wachovia Bank citing that state mortgage lending laws and oversight could not apply to a national bank’s operating subsidiary. Similarly, according to Consumers Union, the OCC has also taken action to block more aggressive mortgage lending oversight by regulators in California, Georgia, and Ohio – states that have been hit hard by the foreclosure crisis. “If states had been allowed to act, consumers would have been better protected from unfair lending practices that led to the mortgage meltdown,” Savage said. Write to Kelly Curran at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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