Eye on Washington

State attorneys general are getting one last chance to overturn a decade of federal court decisions that have turned national banks into sovereign enterprises that can thumb their noses at state consumer protection laws and their enforcers. The Supreme Court has decided to review a decision by the Second Circuit Court of Appeals that essentially frees national banks from all state scrutiny.The appeals court ruled that four national banks did not have to respond to former New York AG Spitzer's request for information about their mortgage lending practices. Mr. Spitzer wanted information to determine if they unfairly placed minorities into higher cost mortgages.The Bush administration sided with the national banks and their regulator - the Comptroller of the Currency - in urging the high court to reject the AG's petition for review. But chief justice John Roberts is very leery of the national banks and the timing could not be better. It gives the Obama administration a chance to weigh in before oral arguments this spring. [It will be interesting to see what his Solicitor General says]. And a new Comptroller should be overseeing the national banks, which have become dependent on capital infusions from the government.Meanwhile, Comptroller John Dugan who so ably shielded national banks from state interference will likely be back at his old law firm. Mr. Spitzer went after the banks because their mortgage lending reports suggest possible disparities between the treatment of whites and minorities. But further data is needed to determine actual discrimination. Mr. Spitzer tried to get that data, but the national banks sued with the blessing of the Comptroller. The second circuit ruled the national banks did not have to respond to the AG's request because it represents an "unlawful exercise of historical powers" as defined by the comptroller and previous court decisions. In other words, state officials can't visit, investigate or interfere with the business or conduct of a national bank period. And in this case, only the comptroller can investigate possible lending violations against the citizens of New York. Now comptrollers are generally picked from the ranks of bank attorneys. They are groomed to be hawks when it comes to expanding the national banking system. They are not known for being tough regulators or protecting consumers from some of the biggest banks in the world. But they do like to win court cases to preempt state laws and keep state regulators at bay. And they have used the Chevron Doctrine - which says federal courts should show deference to a regulator's interpretation - to the up most advantage. In 1984 when the Supreme Court puts its stamp of approval on the Chevron doctrine, regulators were expected to be regulators. But that was 25 years ago before regulators morphed into deregulators. Is it likely those justices would defer to regulators who defer to bank executives and treat them like clients? Would they defer to regulators who use their preemptive powers to exempt national banks from state lending laws that are targeted at curbing abusive subprime lending practices? In making their last stand, 49 state AGs have filed an amicus brief in support of New York AG Andrew Cuomo, who has taken up Mr. Spitzer's case. The state AGs argue that the appeals court erred in its deference to the comptroller. "This case pushed Chevron beyond its intended and reasonable limits," the AGs say. "The court failed to recognize the inappropriateness of Chevron deference in cases where sensitive issues of federalism are at stake." The court also erred by failing to consider the Comptroller's "agency bias and a self-serving preemption agenda," the brief says.P.S. At a regulatory reform hearing recently, Maryland banking commissioner Sarah Bloom said: "Yes, the current crisis has both revealed and created weaknesses and gaps in our regulatory system, but even more, I submit that it reveals the gap in regulatory and political will in Washington. Perhaps the resilience of our financial system during previous crises gave policy makers and regulators not only a false sense of security, but also greater willingness to defer to powerful interests in the financial industry who assured them that all was well."