(Updated with additional details on the ruling, comment from New York's attorney general and a banking association.)
By Brent Kendall Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- In a surprise win for state regulators over the banking industry, a divided U.S. Supreme Court on Monday gave New York prosecutors the green light to investigate national banks for lending discrimination.
The high court, in a 5-4 opinion by Justice Antonin Scalia, said federal banking regulations did not pre-empt the ability of states to enforce their own fair-lending laws.
The ruling was a win for the New York attorney general's office, which had been seeking to investigate the banks' residential real-estate lending practices since 2005.
Scalia said New York Attorney General Andrew Cuomo couldn't issue executive subpoenas to the banks but could bring enforcement actions against them in court.
The decision was a surprise, because decades of Supreme Court rulings have favored federal banking regulation at the expense of state regulation.
The American Bankers Association said the ruling "changes over 140 years of settled law," and expressed worry that national banks now would "face a patchwork of duplicative and conflicting federal and state regulation and enforcement actions."
Cuomo said the ruling "reaffirms the vital role state attorneys general play in protecting consumers from illegal and improper practices by our country's biggest and most powerful banks."
Former Attorney General and Governor Eliot Spitzer launched the probe, saying mortgage data showed black and Hispanic borrowers received a larger percentage of high-interest home loans than white borrowers.
Spitzer asked several banks, including Wells Fargo & Co. (WFC), JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), to voluntarily produce non-public information about their mortgage-lending practices in New York.
In response, the federal Office of the Comptroller of the Currency and a consortium of national banks each sued to block Spitzer's investigation.
The banks said that, because they were regulated by federal authorities, state investigators were broadly precluded from stepping in with their own enforcement actions. Allowing concurrent federal and state regulation would be burdensome and confusing, they said.
The banks and the federal government prevailed in the lower courts, thanks to a 2004 change in OCC policy that made it very difficult for state authorities to enforce state laws against national banks.
Scalia said Monday that the OCC policy change wasn't valid.
The divided ruling didn't split along the court's normal ideological lines. Justice Clarence Thomas, whose views often align with Scalia's, wrote the court's dissent.
Spitzer had called OCC's bid to block his investigation shameful and said the state's probe was needed because the federal government wasn't acting aggressively to investigate racially discriminatory lending practices.
All of the other 49 states backed New York in the case, saying they have historically had the power to enforce consumer-protection laws against national banks. That power, the states said, was particularly important now because of the widespread mortgage abuses that contributed to the nation's economic crisis.
The case is Cuomo v. Clearing House Association, 08-453.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222; brent.kendall@dowjones.com
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Publié le 29 Juin 2009 Copyright © 2009 Dowjones