In the fight over who caused the Great Recession of 2008, the voices saying “I told you so” are many and loud. Some of the loudest are those calling out the U.S. Office of the Comptroller of the Currency, which during the late 1990s and early 2000s used its power of preemption to overrule state laws that cracked down on predatory mortgage lending.
Those laws could have stopped the subprime mortgage crisis before it started, according to the Financial Crisis Inquiry Commission. These days, many consumer advocates point to the OCC’s actions as one of the major mistakes of the last bubble.
“The inability of states to enforce their own consumer protection laws—even as federal regulators stood idly by—was a major factor in the reckless lending that has cost taxpayers trillions of dollars,” Kathleen Day, spokeswoman for the Center for Responsible Lending, wrote in a letter to President Obama.
In contrast, the people who still support the idea of federal agencies usurping state laws tend to speak much more quietly, but with equal force. Last week Randy Neugebauer (R-TX), chairman of the House Financial Services Subcommittee on Oversight, chastised the Treasury Department for trying to limit the OCC’s preemption power.
Here’s the backstory. Last summer, Congress passed the Dodd-Frank financial reform law, which banned the OCC from preempting state laws except in extraordinary circumstances. This spring, the OCC responded with a proposal that effectively brushed that provision aside. The agency plans to continue citing a 1996 Supreme Court ruling to continue preempting state laws whenever it pleases, paying lip service to Dodd-Frank by running its plans by the new Consumer Financial Protection Bureau.
George W. Madison, the Treasury’s lead lawyer, blasted the OCC for ignoring Congress.
“The notion that the new standard does not have any effect runs afoul of basic canons of statutory construction; it is also contrary to the legislative history,” Madison wrote in his letter. We wrote about the dust-up here.
[Related article: The OCC Enters the Thunderdome: Bank Regulators Do Battle]
So now Neugebauer, a Republican who voted against Dodd-Frank, is sticking up for preemption and the OCC. He sent a letter to the Treasury, demanding that the Treasury hand over all documents, records and communications regarding its letter on preemption, plus a chronology of all meetings about the issue.
The stated goal of the inquiry is to make sure Treausry isn’t overstepping its authority. The unstated goal: To rebuke, ever so quietly, regulators who want state consumer protection laws to stick.
“We seek assurances that the Treasury has permitted the OCC to act independently,” Neugebauer said in his letter.
The old adage says “You might like the sausage, but you don’t want to see how it’s made.” This little incident shows that work of Congress and federal regulators making sausage, in all its messy detail. Stay tuned—there’s a lot more meat to come.
Image: Martin Börjesson, via Flickr.com