Deregulatory Fundamentalism at OCC,OTS, and SCOTUS
posted by Frank Pasquale
Jonathan Lipson’s superb post on the credit crisis reminded me of my colleague Linda Fisher’s work to stop predatory lending in New Jersey. She and allies worked hard to get the state to investigate and end abusive practices. . . only to run into President Bush’s Office of the Comptroller of Currency and Office of Thrift Supervision. Both entites feverishly preempted state efforts to stop the worst practices of subprime lenders. The preemption program came to fruition in early 2004. Supreme Court, Inc. then went on to validate more radical deregulatory maneuvers in Watters v. Wachovia. I’m sure Wachovia shareholders are now deeply grateful to the Administration and its friends at SCOTUS for sparing them the burdensome regs that might have prevented Wachovia’s near collapse.
Back in mid-2004, the Center for Responsible Lending warned that OCC demonstrated “significant bias in its review of research conducted on the impact of anti-predatory lending laws”, “ignor[ing] compelling research in favor of uncritical acceptance of flawed research that supported the OCC’s position.” As Martin Eakes testified before Congress,
[T]he OCC’s expansive interpretation of the standard for federal preemption dramatically alter[ed] the . . . partnership between the federal government and the states in promoting a dual-banking system and in protecting the nation’s consumers. Rather than help to support the fight against predatory lending, the OCC has used strong rhetoric, biased research, and contorted legal analysis to undermine effective state efforts to combat predatory lending without cutting off access to credit.
I used to think that deregulatory fundamentalism “merely” undermined the legal profession and its larger purpose of promoting fairness and equity. The subprime meltdown shows that the consequences are even starker–that the fraudsters who’ve gotten a free pass from regulators for so long have rendered the entire financial system as fragile as the sham deals and entities they promoted.
October 5, 2008 at 9:13 pm
Posted in: Administrative Law, Corporate Law, Economic Analysis of Law
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Responses (2)
Frank Miller - October 5, 2008 at 11:59 pm
This whole talk about the court decision is missing the big picture. Now, the big banks are fighting each other in a break neck race to consolidate which is being done for business survival rather than business gain. Sadly, the bailout will not help them much. They are hurting and when they hurt, we all suffer. Everyone should start looking for ways to protect their money. This basically comes down to either taking your money out of the market and cutting discretionary spending or diversifying and investing some overseas. I personally use offshore bank accounts and they have helped me with diversification and asset protection. If you want to read more on why offshore investing is smarter, feel free to visit my website.
Best,
Frank Miller
http://www.theoffshorebankaccount.com
Bruce Boyden - October 6, 2008 at 11:50 am
For more on OCC preemption see pp. 11-14 of this excellent amicus brief:
http://www.responsiblelending.org/pdfs/Amicus-Watters_Wachovia.pdf
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