WASHINGTON -
In a ruling widely anticipated by both banks and credit unions alike, the High Court ruled that states may not regulate the mortgage-lending subsidiaries of national banks. The case has pitted state regulators and consumer groups against federal regulators and nationally chartered institutions.
The national banks had argued that to subject their state subsidiaries to a patchwork of rules and regulation would be unduly burdensome, especially when Congress had made it clear that the Office of the Comptroller of the Currency had authority of national charters.
In the case, Wachovia (Bank) Mortgage told Michigan regulators it would no longer abide by state regulations, prompting the state regulator to bar it from lending in Michigan.
Nationally chartered banks dominate the banking industry, with 1,800 national banks controlling $7 trillion in assets, or 70% of the commercial banking industry's assets. About 10% of those institutions have state-incorporated banking subsidiaries.
The ruling comes as many states have been moving to enact tough anti-predatory lending laws, while federally chartered lenders, including credit unions, insist that such state laws do not apply to them. NCUA has issued several legal opinions in recent years supporting this position.
Congressional leaders, who are also grappling with a growing patchwork of state laws on data security, are expected to review the preemption issue in coming months. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, has set it among his top priorities for the 110th Congress.
