Predatory lenders had a partner in their crimes according to Eliot Spitzer. The Bush administration looked the other way and did nothing to protect American homeowners from egregious lending practices, choosing instead to align itself with the banks that were victimizing consumers as predatory lending became a national disgrace.
In an article for The Washington Post, written shortly before Spitzer’s resignation as Governor of New York, he reports that several years ago state attorneys general and others involved in consumer protection began to notice a marked increase in the range of predatory practices of mortgage lenders. Some lenders were misrepresenting the terms of their loans, granting loans without regard to consumer’s ability to repay, using ‘teaser’ rates that later ballooned into huge payments, filling loans with hidden charges and fees, and in some cases paying illegal kickbacks.
Spitzer was disturbed by these practices which he saw as having a devastating effect on home buyers. He believed that the widespread nature of these practices, if left unchecked, threatened financial markets in America and abroad. The impending crisis was felt so intensely by Spitzer during his term as New York attorney general, that he joined with colleagues in the other 49 states in an attempt to fill the void left by the regulatory arms of the federal government.
Individually and as a group these attorneys general from both political parties brought litigation or entered into settlements with many subprime lenders that were engaged in these predatory lending practices. Several state legislatures, including New York’s, enacted legislation directed at curbing such practices.
However, as the news that hundreds of thousands of Americans faced foreclosure sent the markets reeling, the Bush administration took no action to halt the burgeoning scourge. The administration not only did nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from taking action to protect their residents from these problems to which the federal government was turning a blind eye.
According to Spitzer, the administration accomplished this feat through the use of an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC came into existence during the Civil War with the mission of ensuring the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, playing an important but uncontroversial role in consumer protection. Then a few years ago, for the first time in its history, the OCC was used as a tool against consumers in an unprecedented assault of state legislatures, the state attorneys general and anyone else on the side of consumers.
During the height of the predatory lending crisis in 2003, the OCC invoked a clause from the 1863 National Bank Act that allowed it to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. New rules that prevented states from enforcing any of their own consumer protection laws against national banks were also enacted by the OCC.
The attorneys general and all 50 state banking superintendents were astounded by the egregious actions of the federal government, and actively fought the new rules. But this unanimous opposition of the 50 states did not deter or even slow the Bush administration in its efforts to protect the banks from regulation. In fact, when Spitzer’s office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout the battles, the defense of the OCC was that any efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. According to Spitzer, the curbs being sought on predatory and unfair lending practices would have in no way jeopardized consumer’s access to the legitimate credit market for appropriately priced and disclosed loans. Instead, they would have halted the merciless predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy into such a precarious position.
About the author
Barbara is a school psychologist, a published author in the area of personal finance, a breast cancer survivor using “alternative” treatments, a born existentialist, and a student of nature and all things natural. Barbara L. Minton