In a battle that brings the escalating conflict over state regulatory authority to the fore, a coalition of sub-prime lenders is asking Congress for national legislation that would exempt them from the expanding patchwork of state predatory lending laws. The proposal, backed by the Coalition for Fair and Affordable Housing, threatens to emasculate state legislative and regulatory authority with a provision giving state charters the same preemption given federally chartered institutions.
The conflict could help reverse the flight from federal credit unions, as credit unions in several locales, including California, Georgia and Washington, D.C., have received or asked for NCUA backing in recent months to use the Federal CU Act to shield them from unpopular consumer requirements. In California it was the credit card disclosure law. In Georgia the state's new predatory lending laws. Washington, D.C., credit unions are also asking NCUA help in the efforts for a preemption from the District's new predatory lending law.
National banks are also flocking to federal regulators to shield them from onerous state laws on predatory lending, credit card disclosures, ATM surcharges, and mortgage loans, a situation that has threatened banking giant Wells Fargo's lucrative mortgage business in California.
Just last week a federal appeals court, the U.S. Court of Appeals for the Fifth Circuit in New Orleans, ruled that a Texas law prohibiting banks from charging non-account holders a check-cashing fee is preempted for national banks.
"That's a bubbling, rising, hot issue," said Jonathan Lindley, chief lobbyist for NASCUS. "If all the federal institutions get exempted from state laws, then where does that put the state-chartered banks, savings and loans, and credit unions,"
The emergence of credit union tax proposals in several states is also posing the federal charter as an attractive alternative. "The whole states' rights issue has become twisted and contorted," said Lindley.