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Financial Reform: Keep State AGs and State Law on the Beat Against Predatory Lending Practices

As Congress debates federal financial reform legislation, a key priority for financial industry lobbyists remains gutting provisions that would strengthen enforcement by state attorneys general and stopping the partial restoration of state powers to regulate national bank abuses against consumers.  As we detailed three years ago, much of the damage to communities from subprime lending might have been avoided if the Bush Administration had not been able to shut down most state anti-predatory lending laws early in the decade.

Strengthening state power to regulate abuses by national banks has been a priority for reformers from the beginning of the financial reform process.  While the bill approved in the House and the current leadership proposal in the Senate are not as strong in preserving state enforcement powers as some early proposals, under them state attorneys general would still retain the power to enforce federal law against national banks.  Federal authority to preempt state banking laws would also be more limited than under our current laws.  One broad amendment to keep current bad federal preemption of state banking laws was rejected last Thursday, although most conservative Senators voted for it.  (Note that "states' rights" inevitably lose out in conservative hands when corporate interests want federal power to trump state regulations). 

Stopping Bad Senate Deals on Preemption:  Newspapers continue to report on deals being negotiated between conservative Democrats and Republicans to undermine state regulatory authority, even as national consumer leaders continue to speak out against any further preemption compromises.  A letter sent to Senators on Friday by Americans for Financial Reform, a coalition made up of over 250 consumer, labor and civil rights groups, highlights the key arguments for why expanding state authority is so critical, including:

  • "Help from state AGs is critical to ensuring that consumers have at least minimum protections against reckless Wall Street practices.  In addition, consumers are much more likely to complain to, and get a response from, state-based enforcement agencies."
  • "States need to be able to address new problems before they spread nationally, without waiting for federal regulators to notice them and respond... States that had tough anti-predatory lending laws (until they were preempted) had lower foreclosure rates than states without those laws.  After state laws were preempted, national banks made riskier loans." 
  • "It is critical to require a case-by-case assessment of state laws for purposes of federal preemption rather than permitting state laws to be wiped out broadly without due consideration for each law... the protections in the bill against excessive preemption need to be strengthened, substantively and procedurally, to ensure that the [federal government] must undertake a serious inquiry and not a pro forma one."

With critical votes happening all this week, Americans for Financial Reform has an action page with key alerts and tools for contacting Congress to express the need for real financial reform, including keeping authority in the states to protect consumers from national bank abuses.

Resources:
Progressive States Network - The Predatory Lending Bubble and How the Feds Made it Worse
Progressive States Network - Protecting State Consumer Protection from Preemption in Federal Financial Reform
Americans for Financial Reform - Elizabeth Warren and Attorney General Lisa Madigan Speak Out Against Preemption Deal
Americans for Financial Reform - Keep State Attorneys General On The Predatory Lending Beat: Oppose Amendments To Further Preempt State Authority