Court To Hear Case On Power To Investigate Banks

With the nation in the midst of a mortgage foreclosure crisis, the Supreme Court on Tuesday takes up a case testing whether federal law shields federally chartered banks from state regulation. The court will decide whether state regulators may investigate discriminatory lending practices at national banks that have branches in their states.

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With the nation in the midst of a mortgage foreclosure crisis, the U.S. Supreme Court today takes up a case testing whether federal law shields federally chartered banks from state regulation. In particular, the court will decide whether state regulators can investigate discriminatory lending practices at national banks that have branches in their states.

NPR legal affairs correspondent Nina Totenberg reports.

NINA TOTENBERG: Three years ago, the New York State attorney general saw new data published by the federal government that showed national banks in New York were giving white borrowers lower mortgage rates than black and Hispanic borrowers. The attorney general sent letters to these banks - including JPMorgan Chase, Wells Fargo and Citibank - asking for more information on these loans, information that would show whether, in fact, they had a legitimate basis for the differing rates.

The banks went to court to block the requests, contending that under federal law, national banks are regulated by the Federal Office of the Comptroller, and that state regulators are preempted from taking any regulatory action against them to enforce state consumer or anti-discrimination laws. The banks were joined in the lawsuit by the federal comptroller, and they won in the lower courts.

The New York State attorney general appealed to the U.S. Supreme Court, backed by the attorneys general from the other 49 states. The state AGs note that they have a long track record of consumer protection enforcement, and they contend that barring them from such actions, especially in light of the subprime lending debacle, would be not only foolish but a violation of the federal law.

They contend that Congress, in giving the comptroller the power to regulate national banks, clearly authorized inspection, auditing and supervision of these banks, but it did not intend to deprive the states of their ability to enforce their own consumer protection and anti-discrimination laws. The states point to a document produced by the comptroller's office in 2005, showing it has only three people assigned to investigating and resolving consumer complaints nationwide.

In contrast, the states say their attorneys general have over 700 full-time examiners and lawyers assigned to ensuring that state consumer protection laws are enforced. In response, the federal government contends that Congress intended the Office of the Comptroller to be the sole regulator of national banks, and that any state intrusion would inevitably result in conflicting requirements from state to state that would pose difficulties for national banks. Now, the Supreme Court will decide.

Nina Totenberg, NPR News, Washington.

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