Eagleionline

Today the Supreme Court found no legal preemption in the realm of banking regulation, allowing the New York state Attorney General to investigate allegations of discriminatory lending practices by banks located in New York state. The banks claimed that they were subject to federal lending regulations which thus created field preemption over all state law claims against them. Although preemption claims by the banks delayed discriminatory lending claims from reaching state court, the dilemma of which regulations can apply to banks was decided after a four year journey to the Supreme Court where Justice Scalia wrote the majority opinion.

The states, especially New York, have been granted open season to investigate banks that may have contributed to the current economic crisis and prosecute them for violating state as well as federal law. Former governor Eliot Spitzer originally launched this investigation in 2005 after reports came in that black and Hispanic borrowers were receiving less favorable interest rates from New York banks. Wells Fargo & Co., J.P. Morgan Chase & Co., and Citigroup Inc. have been targeted by the New York attorney general so far. The federal Office of the Comptroller of the Currency interceded, claiming field preemption and suing governor Spitzer to block his investigation. Now that the Supreme Court has neither field preemption nor a conflict between the state and federal banking regulations, the state investigation into questionable lending can proceed.

This holding is expected to be cited widely by other state agencies looking to investigate questionable lending practices, especially during the current economic crisis. The state governments have a special interest in reigning in destructive lending practices given the severity of the situation and apply state resources to police these banks where the federal agencies are stretched too thin.