State Legislators Moving Quickly on Subprime Lending

Bloomberg has some interesting coverage of the ongoing state-vs.-federal mortage regulation debate, which looks at how state lawmakers are moving quickly to regulate subprime lending in their states in the absence of any federal action:

“The states are going ahead and doing what they think is in the best interest of their citizens,” said Minnesota Attorney General Lori Swanson. “Hopefully, the federal government will act, too, but the states aren’t waiting.” The initiatives are raising the stakes in a long-running battle over who should take the lead in protecting consumers. Mortgage lenders want federal law to override state statutes, saying multiple laws interfere with their efficiency. State officials counter that they often have stronger enforcement.

It isn’t helping that the two most visible Congressional lynchpins surrounding federal housing regulation — Senator Christopher Dodd, head of the banking committee, and Rep. Barney Frank, chairman of the House Financial Services Committee — have yet to introduce even one bill addressing the issue, while nearly every state has been busy this year passing its own legislation in the area.

About 35 states already have some laws against predatory lending. The state efforts to regulate the subprime market “have been met with resistance or indifference from federal regulators and even Congress,” [North Carolina Banks Commissioner Joseph] Smith said at a March hearing of the Senate Banking Committee … Mortgage industry lobbyists counter that a patchwork of state rules makes it hard to operate across state lines … “For us, that’s been the price of admission, the price of support,” said Kurt Pfotenhauer, the MBA’s lead lobbyist. “That’s what brings our industry to the table with Congress.”

It’s an interesting battle, because the real question here isn’t about how slow federal officials have been to move on this — it’s a question of whether emerging federal law will serve to either supercede or reinforce what is quickly becoming a patchwork series of state laws affecting subprime lenders.

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