The Supreme Court on Monday ruled that states can apply some of their own laws to big national banks operating within their borders, a decision proponents called a huge win for consumers and for states seeking more power to regulate financial activities.
The Supreme Court on Monday ruled that states can apply some of their own laws to big national banks operating within their borders, a decision proponents called a huge win for consumers and for states seeking more power to regulate financial activities.
The high court ruled that a state attorney general cannot on his own issue a subpoena against a bank that has branches in that state and others. However, the court also said that national banks are subject to some state laws under the National Banking Act, and an attorney general can go to court to enforce those laws.
"What this decision today says is that states have the ability to enforce their own laws [against national banks] as long as they follow state due process procedures, which generally mean issuance of a subpoena which can be challenged in court," said lawyer John Cooney, a former assistant solicitor general and deputy general counsel at the Office of Management and Budget.
Officials say the 5-4 decision opens the door for states to do their own investigations of national banks, as long as they can convince a judge that investigations are needed.
New York Attorney General Andrew Cuomo called the decision "a huge win for consumers across the nation."
"I am pleased that the court has turned back efforts by the nation's largest banks to prevent the efforts of New York and other states to protect consumers from predatory financial practices," Cuomo said. "With this decision, the court has recognized that fair lending and consumer protection — the cornerstones of a sound economy — require the cooperative efforts of both the states and the federal government."
The state of New York had asked the Supreme Court to overturn a federal appeals court decision that blocks states from investigating the lending practices of national banks with branches within its borders. It was supported by the other 49 states.
Eliot Spitzer, then New York's attorney general, wanted to investigate whether minorities were being charged higher interest rates on home mortgage loans, a practice that is prohibited under various state and federal laws. But federal judges said Spitzer could not enforce state fair-lending laws against national banks or their operating subsidiaries by issuing subpoenas and bringing enforcement actions against them.
"Here, the threatened action was not the bringing of a civil suit, or the obtaining of a judicial search warrant based on probable cause, but rather the attorney general's issuance of subpoena on his own authority," said Justice Antonin Scalia, who wrote the opinion for the court. "That is not the exercise of the power of law enforcement 'vested in the courts of justice,'" which the National Banking Act allows.
The Clearing House Association, which represents the banks, said the attorney general was interfering with the federal government's supervisory powers.
The 2nd U.S. Circuit Court of Appeals in New York City had ruled that the responsibility for such investigations rests with the Office of the Comptroller of the Currency, a part of the Treasury Department, and other federal agencies.
Comptroller of the Currency John C. Dugan said he was disappointed by the court's ruling.
"I want to stress that the OCC is absolutely committed to strong oversight and enforcement of the fair lending laws, and that the OCC and the states share a common goal of ensuring fair access to financial services and fair treatment of consumers and businesses by all financial firms," Dugan said. "We look forward to working with the states to ensure that these important objectives are met."
Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito and Anthony Kennedy dissented in part, saying they would have ruled with the New York-based appeals court.
"Without a uniform regulation and enforcement of the laws that apply to national banks, which often includes state law, those institutions will face a patchwork of duplicative and conflicting federal and state regulation and enforcement actions," said Edward L. Yingling, president and chief executive officer of the American Bankers Association. "This will make it difficult to serve consumers in today's hi-tech, mobile society where people and bank services move constantly across state lines."
The case is Cuomo v. The Clearing House Association, 08-453.
