Friday, May 01, 2009

Footnote to the preceding

Updated As if to prove my contention that Barack Obama
is trying to resolve the crises and shore up the institutions while changing as little as possible about the logic or principles on which they're based,
President Change-a-Lot said at his celebratory press conference Wednesday that
his administration had no choice but to step in as the financial and auto sectors were collapsing and that "our first role should be shareholders that are looking to get out."

"I don't want to run auto companies. I don't want to run banks. I've got two wars I've got to run already. I've got more than enough to do. So the sooner we can get out of that business, the better off we're going to be," he said. "I want to disabuse people of this notion that somehow we enjoy, you know, meddling in the private sector."
On the other hand, his administration seems to have no difficulty meddling in support of "the private sector," as an article at Mother Jones earlier this month made clear:
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 US Supreme Court to argue that those banks - including bailout recipients Bank of America, Citi, Wells Fargo, and JPMorgan Chase - should be allowed to duck a state investigation into their lending practices.
This started in 2005 when then-NY attorney general Eliot Spitzer wrote to (not subpoenaed, wrote to) several banks asking for information about their lending practices after he learned they were issuing a high number of high-interest loans to blacks and Hispanics. Citing federal regulations issued the year before, the banks responded by suing Spitzer, claiming that federal banking law preempted state investigations - that is, state governments could not investigate these banks, only the federal government could. And that this even applied to enforcement of state consumer protection laws.

Assisted by the Bush administration, the banks won at the District and Appeals Court levels. The case, now called Cuomo v. the Clearing House Association, Andrew Cuomo having succeeded Spitzer as AG of New York, is now before the Supreme Court; oral arguments were heard on Tuesday.

And the Obama administration is weighing in on the side of the banks, arguing that while states are well, of course, free to pass consumer protection laws regulating banks, only the federal Office of the Comptroller of the Currency can enforce those laws. The individual states can't. Which I find like saying that freedom of the press means you have a right to print a newspaper but do not have the right to circulate it.

The government's brief argues that the OCC does a good job of protecting consumers so additional state oversight is both unwieldy and unnecessary. But as the Mother Jones article explains,
[o]ver the years, the OCC has tried to prevent state consumer protection actions against all sorts of shady practices. For instance, the OCC has intervened to prevent states from cracking down on telemarketing fraud and misbehavior by car dealerships, an unlicensed trade school, an air-conditioning company, and a mall that issued gift cards - all because each of these entities had a financing relationship with OCC-chartered banks. The OCC's track record in 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.
And with a nod to the Harper's Index, the article also served to reveal this tidbit:

- Number of consumer complaints filed with OCC's Customer Assistance Group per year: more than 70,000
- Number of employees of the Customer Assistance Group actually investigating and resolving consumer complaints: 3

That is the record the Obama administration wants to stand on. Every other state attorney general - all 49 of them - have filed a joint brief in support of Cuomo. But given the choice between those who actually have the job of enforcing consumer protections and the banks, Obama has chosen the banks.

Footnote to the Footnote: As it seems in every other case, the defense has been raised that the Obama team just didn't have enough time to re-think its position and somehow, well, it'll be okay somehow. Even that Mother Jones article says it:
The administration's brief in Clearing House was due only six days after [Elena] Kagan was confirmed [as solicitor general]. 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 preeminent financial consumer protection agency.
Frankly, I'm sick and tired of that lame argument. And in this case, it's idiocy. "Reversing course" in the case would have been "problematic" but doing so after you've gotten it established as a legal principle that it's up to the OCC to enforce state financial consumer protection laws wouldn't be? What shift, what "change" in regulatory policy are you talking about here? Is the agency going to get far more aggressive? No, it doesn't have the staff or the budget. Oh, maybe the intention is to change the law to undo the federal preemption? Fine - except that if SCOTUS rules the way the Obama team is urging, until that happens there would be for practical purposes no state-level financial consumer protection laws because there would be no way to enforce them. I can already hear the drips into the puddles of drool falling from the lips of a boatload of cheats, chislers, and con artists - including the banks.

Updated with a clarification: The Obama team's filing would only shield OCC-chartered banks from state-level enforcement. Only "national" banks are OCC-chartered banks. But since pretty much any state-chartered bank with a single branch in another state can switch from being state-chartered to OCC-chartered (or even vice-versa if that seems immediately advantageous), that's very little protection. As the MJ article notes,
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.
So while it would not be true that an Obama win at SCOTUS would mean there was no state-level financial consumer protection, I think the statement that "for practical purposes" there would be none is accurate.

Updated also with the link to the item about the regulations used as the basis for the suit against Spitzer.

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