Scotus Hearing Arguments on Federal Pre-Emption

In the last administration, the action of regulators could be summed up like this:

1) We reserve the right to regulate, and we deny states the right to regulate within their state.

2) We choose not to regulate.

It was a nice one-two punch.  In North Carolina, some good anti-predatory lending laws were enacted that should have shielded our residents from many problems.  When in place, the state rules worked.  State-regulated institutions (including BB&T, the largest) followed those rules.

Still, national banks argued that they didn’t need to heed states.  It was too hard to follow rules in 50 places.  Better to follow one rule.  Even better, if the one rule was essentially saying that “there should be no rules.”

In Wachovia v. Watters, the Court emphatically ratified this regulatory principle into law.

Fast forward to today’s hearing, though.  In Cuomo vs. The Clearinghouse Association, the Justices will hear arguments related to New York Attorney General Eliot Spitzer’s investigation into mortgage pricing.  Spitzer was denied the ability to issue subpoenas after he used publicly available data to find discrepancies in lending prices to minorities.

Spitzer had to move on to pursue other opportunities.  Andrew Cuomo has gladly filled in for him, though, and he is the author of the filing heard today.

Bankers have traditionally argued that the publicly available data, from the Home Mortgage Disclosure Act, paints a false picture because it does not contain all of the relevant data that goes into underwriting decisions.  That is true.  Credit scores are omitted, as are loan-to-value ratios.  That said, the banks will not assent to having that data in the HMDA reports, and they declined to make it available to Cuomo.

Cuomo’s petition is here.  The attorneys represent the Clearinghouse Association have presented this brief.

Today, we will get a hint if this case is going to find traction.