Pick Your Regulator, Any Regulator
Okay. So I know pre-emption isn't the most exciting topic. Or at least the number of comments drops precipitously whenever I start talking about attempts to overrule state consumer protection laws with weaker federal regulation. But I'm going to take another stab at it today because there's a Supreme Court case worth keeping an eye on.
(Remember, broccoli is good for you.)
The case is Watters v. Wachovia Bank. Ostensibly, it's about the mortgage-lending business, but depending on how the Supremes rule, it could have far reaching implications for business regulation, period.
States, after all, have regulations on everything from auto emissions to product safety.
My colleague Kirstin Downey recently broke down the details of the case like so:
For more than two decades, states have regulated the mortgage-lending practices of state-chartered subsidiaries of national banks. The parent national banks are regulated by a federal agency, the Office of the Comptroller of the Currency. In 2001, the OCC ruled that state regulation was improper, saying that under federal law those lenders should be overseen by the federal government.
In 2003, Charlotte-based Wachovia Bank decided that it wanted to be regulated solely by the OCC. It told the states where it runs mortgage lending companies that those firms would no longer register with state officials or abide by local rules. Other banks have also announced their intention to seek regulation by the OCC alone.
That's right. Pick your regulator, folks. Any regulator. Especially ones that don't have laws against predatory lending.
To take the banks' side for a second, state and local regulation of lending varies widely. Though well-meaning, the mishmosh of rules makes it harder to develop uniform business practices, which makes it more expensive to process mortgage loans, and in turn, more expensive for consumers.
Wachovia has the support of major banking industry trade groups and the U.S. Chamber of Commerce.
On the other side, you have the attorneys general of all 50 states, the District of Columbia, and Puerto Rico.
So far, Wachovia has prevailed in the lower courts. The fact that the Supremes decided to hear the appeal has many people wondering if they're planning on reversing those rulings.
Earlier this week, the AGs made their case. Chief Justice John G. Roberts Jr. seemed sympathetic, expressing concern about the banks' apparent effort to get around state regulations. Other justices, meanwhile, seemed more sympathetic to the notion that banks face excessive regulation.
Wireless carriers have made the same arguments about state laws that regulate the terms and conditions of wireless contracts. And food manufacturers sing a similar tune about state labeling requirements.
In each of these cases, two consumer interests are seemingly pitted against one another: consumer protection and cost.
Given how upset consumers get these days over things such as poor treatment and hidden fees, no matter what the cost of the product or service, I would hazard to guess that many consumers would value the former a little more. But I don't know.
Better yet, why don't you tell me. Which way do you think the Supremes should rule?
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