Supreme Court Sides With Mortgage Lenders in Regulatory Skirmish

The Supreme Court ruled yesterday that states may not regulate the mortgage lender subsidiaries of national banks, in a case that pitted all 50 states and consumer groups against banks and their federal overseers.

The national banks argued their subsidiaries were subjected to unduly burdensome state rules and regulations after Congress had made it clear they should be regulated by the U.S. Office of the Comptroller of the Currency (OCC).

The states had argued that their role was lawful and necessary to protect consumers from predatory mortgage lending practices and other potential violations.

In a 5-to-3 ruling, the court sided with the national banks.

“We have repeatedly it clear that federal control shields national banking from unduly burdensome and duplicative state regulation,” Justice Ruth Bader Ginsburg wrote in an opinion joined by Justices Samuel A. Alito Jr., Stephen G. Breyer, Anthony M. Kennedy and David H. Souter.

Chief Justice John G. Roberts Jr. dissented, along with Justices Antonin Scalia and John Paul Stevens. Clarence Thomas recused himself for undisclosed reasons.

The Supreme Court’s ruling coincides with national debate on how to stem a surge in missed home mortgage payments and foreclosures, both of which have risen to record levels in some parts of the country.

As the bad credit mortgage crisis continues to unfold, federal and state regulators have been accused of failing to properly monitor industry practices.

Most notably, the controversy of recent months has centered around abusive lenders who charged excessive or unnecessary rates and fees for their home loans.

Yesterday’s ruling will help national banks better cope with the problems at hand, said Edward L. Yingling, president and CEO of the American Bankers Association.

“Instead of being distracted by who is enforcing which law, now the home loan industry can focus on the more important issue of compliance with the law itself.”

Consumer advocates, however, argued that the states have been much more effective at policing lenders. They said Congress should preserve the states’ role through legislation.

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