In fact, the early ’00s were busy years in the anti-predatory lending business. The Federal Trade Commission, before it apparently fell down a black hole, settled an anti-predatory lending investigation against Citigroup’s giant subprime factory, CitiFinancial, for $240 million, covering two million customers. A coalition of states reached an even bigger one with Household International for $484 million. This was in 2002.
The BusinessWeek story lays out the record well, and assigns credit, well-deserved, to North Carolina’s Cooper and Iowa’s Miller for confronting Hawke, who is now back at his old job of defending lenders at a white-shoe Washington law firm.
The headline—“They Warned Us About the Mortgage Crisis”—is apt.
But of course, as Tonto said to the Lone Ranger: “What do you mean ‘us,’ white man?”
Indeed, fights between states and the Bush administration over consumer protections against allegedly rampaging lenders broke out around the country. As BusinessWeek mentions, Michigan in 2004 sought the right to examine the books of Wachovia’s mortgage unit and fought the OCC and the banking industry all the way the U.S. Supreme Court, which decided for Wachovia in 2007—about a year before it was sold to Wells Fargo to fend off seizure by the Federal Deposit Insurance Corporation, an arm of the same federal regulatory structure that blocked Michigan’s scrutiny.
Talk about Pyrrhic victories.
At the time it was fighting Michigan, Wachovia was also fighting Connecticut banking regulators on the same issue, prompting no fewer than thirty-five attorneys general and forty-three bank regulators to side with Connecticut—”a number lawyers call unusually high,” according to an August 2003 Reuters story.
Spitzer’s involvement, though, raised the issue to another level of prominence.
This was long before his incredible implosion, of course. Spitzer had already fought his state’s own banking department to wring a big settlement from Delta Funding Corporation, a notorious, now-defunct hard-money lender to low-income people in Brooklyn and Queens. He was among the AGs to look into Household, starting in 2001, and found that the lender, among other things, didn’t include points and taxes in monthly loan amounts presented to borrowers, who found out what their real payments would be only after the closing. Nice industry, subprime. It always was.
This was about the time Spitzer would discover that Wall Street banks were cheating retail customers by recommending stocks they knew were dogs and right before he discovered that the mutual fund industry was cheating its retail customers by allowing favored clients to trade after hours, which came right before he discovered that commercial insurance brokers were cheating their clients by taking kickbacks from insurers instead looking for the best deal, which was right before he discovered that American International Group—does that name ring a bell?—was hiding losses and otherwise deceiving the market.
So his credibility was very high at the time, while the financial-services industry’s was not.
And he kept it up. He held press conferences with congressmen (1). He sued a nationally chartered bank, First Tennessee, that was threatening foreclosure on a New York man who had overpaid his mortgage by $9,000. The OCC intervened. The case was settled. But the fight was only heating up.
This was March 2004.
Spitzer’s fights were well covered, but then this was not an easy story to miss.
Typically, and understandably, the business press responded by framing the fight in one of two ways: as a turf war between ambitious, willful politicians, or, comically, as a good-faith dispute over regulatory “philosophies,” although strangely, in this case, the Bush administration and its amen-corner, The Wall Street Journal editorial page, abandoned their usual commitment to federalist principles and went with the centralized approach, which happened to be the more lax of the two and the one favored by the banking and securities industries.(2), (3), (4).
The stories are fine and give plenty of weight to Spitzer’s side.
The Journal wrote:
The OCC justified its January move by saying only a federal regulator can provide an efficient national banking market by assuring that the playing field is level from state to state for national banks, a category that includes big lenders such as Citigroup Inc. and Bank of America Corp. Failure to provide this level playing field, warns Comptroller John D. Hawke, would mean banks may no longer be able to offer loans to particularly less privileged borrowers.
Besides, Mr. Hawke says, the OCC’s power to pre-empt states in bank regulation are rooted in 140 years of legal precedent granting the OCC pre-emptive authority in national banking issues. “Federal pre-emption is a principle that is almost as old as our nation itself,” Mr. Hawke says.