Misplaced Blame in the Loan Crisis

Thursday, March 6, 2008

In his Feb. 14 op-ed, "Predatory Lenders' Partner in Crime," New York Gov. Eliot Spitzer tried to blame the Office of the Comptroller of the Currency (OCC), which regulates national banks, for all the current problems caused by subprime loans. Nice try, governor. The facts tell a very different story.

The overwhelming majority of the subprime loans causing so many problems today, including the most predatory loans, were originated by state-regulated mortgage brokers and lenders. That's a fact, and here's another: The OCC doesn't regulate those brokers and lenders; that's the job of the states. The national-bank preemption that Mr. Spitzer complained about -- recently upheld by the U.S. Supreme Court -- did nothing to handcuff state efforts to prevent lenders from making loans that borrowers had no reasonable prospect of repaying.

More facts: The OCC extensively regulates national banks' activities, including mortgage lending. We established strong protections against predatory lending years ago, and we enforce them rigorously. And we have been a recognized national leader in addressing problems that can arise from such nontraditional products as "payment option" mortgages.

The results: Predatory mortgage lenders have avoided national banks like the plague. The abuses that consumers complain about most -- such as loan-flipping and equity-stripping -- are not tolerated in the national banking system; nor are the looser lending practices of the subprime market.

Effective regulation of subprime mortgage lending is a job for both federal and state agencies. But the most urgent need today is for the states to use the authority they already have to effectively regulate the institutions that caused most of the problems.


Comptroller of the Currency



Eliot Spitzer's tirade against the Office of the Comptroller of the Currency so profoundly muddles the law of federal preemption that one wonders whether he has read the many cases -- including those in which he was a losing litigant -- that have applied this rule for almost 200 years.

The rule derives from the Supremacy Clause of the U.S. Constitution and is quite simple: The states have no authority to interfere with the operations of nationally chartered banks. For Mr. Spitzer to characterize the OCC's enforcement of this rule as "an unprecedented assault on state legislatures" is nonsense.

The OCC has a good record on predatory lending. When the OCC put out the regulation that Mr. Spitzer attacked, we included strong provisions addressing such lending. The OCC was also the first federal banking agency to sanction banks for engaging in unfair and deceptive practices in violation of the Federal Trade Commission Act, and it maintains a world-class ombudsman and consumer assistance office that has helped myriad bank customers in their dealings with banks.

Mr. Spitzer was also off the mark in repeatedly characterizing the OCC's actions as those of "the Bush administration." I was appointed comptroller by President Bill Clinton for a term that carried into the next administration, and the OCC's actions during my tenure were those of the OCC alone.

At no time did we receive any direction from anyone in the Bush administration with respect to our enforcement of the long-standing rules on preemption.



The writer was comptroller of the currency from 1998 to 2004.

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