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Editor's note: The following article was published in The Washington Post the day after New York Gov. Eliot Spitzer allegedly engaged the services of a call girl at the Mayflower Hotel in Washington, DC. ma/TO
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Predatory Lenders' Partner in Crime
By Eliot Spitzer
The Washington Post
Thursday 14 February 2008
How the Bush administration stopped the
states from stepping in to help consumers.
Several years ago, state attorneys general and others involved in consumer
protection began to notice a marked increase in a range of predatory lending
practices by mortgage lenders. Some were misrepresenting the terms of loans,
making loans without regard to consumers' ability to repay, making loans with
deceptive "teaser" rates that later ballooned astronomically, packing
loans with undisclosed charges and fees, or even paying illegal kickbacks. These
and other practices, we noticed, were having a devastating effect on home buyers.
In addition, the widespread nature of these practices, if left unchecked, threatened
our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration
looked the other way and did nothing to protect American homeowners. In fact,
the government chose instead to align itself with the banks that were victimizing
consumers.
Predatory lending was widely understood to present a looming national crisis.
This threat was so clear that as New York attorney general, I joined with colleagues
in the other 49 states in attempting to fill the void left by the federal government.
Individually, and together, state attorneys general of both parties brought
litigation or entered into settlements with many subprime lenders that were
engaged in predatory lending practices. Several state legislatures, including
New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and
decide to take action to halt this burgeoning scourge? As Americans are now
painfully aware, with hundreds of thousands of homeowners facing foreclosure
and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked
on an aggressive and unprecedented campaign to prevent states from protecting
their residents from the very problems to which the federal government was turning
a blind eye.
Let me explain: The administration accomplished this feat through an obscure
federal agency called the Office of the Comptroller of the Currency (OCC). The
OCC has been in existence since the Civil War. Its mission is to ensure the
fiscal soundness of national banks. For 140 years, the OCC examined the books
of national banks to make sure they were balanced, an important but uncontroversial
function. But a few years ago, for the first time in its history, the OCC was
used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked
a clause from the 1863 National Bank Act to issue formal opinions preempting
all state predatory lending laws, thereby rendering them inoperative. The OCC
also promulgated new rules that prevented states from enforcing any of their
own consumer protection laws against national banks. The federal government's
actions were so egregious and so unprecedented that all 50 state attorneys general,
and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow,
the Bush administration in its goal of protecting the banks. In fact, when my
office opened an investigation of possible discrimination in mortgage lending
by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks
and their defenders was that efforts to curb predatory lending would deny access
to credit to the very consumers the states were trying to protect. But the curbs
we sought on predatory and unfair lending would have in no way jeopardized access
to the legitimate credit market for appropriately priced loans. Instead, they
would have stopped the scourge of predatory lending practices that have resulted
in countless thousands of consumers losing their homes and put our economy in
a precarious position.
When history tells the story of the subprime lending crisis and recounts its
devastating effects on the lives of so many innocent homeowners, the Bush administration
will not be judged favorably. The tale is still unfolding, but when the dust
settles, it will be judged as a willing accomplice to the lenders who went to
any lengths in their quest for profits. So willing, in fact, that it used the
power of the federal government in an unprecedented assault on state legislatures,
as well as on state attorneys general and anyone else on the side of consumers.
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The writer is governor of New York.
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