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Fair lending fight goes to Supreme Court
Yesterday, the United States Supreme Court decided to hear a landmark case in the fight for fair lending across this nation. The Court will consider whether the state of Michigan can regulate Wachovia Corporation’s mortgage lending within its jurisdiction. Wachovia argues that it is a national bank regulated by the U. S. Office of the Comptroller of the Currency and that its subsidiaries are not subject to state rules.
The Bush Administration adopted Wachovia’s argument and lobbied against the Court taking the case - but forty-two states and the District of Columbia fought for the case to be heard in order to protect consumers from unfair lending practices. Several states including California, Connecticut, Florida, Massachusetts, New Jersey and North Carolina have similar rules to Michigan for mortgage lending. In fact, there have been several court cases within those jurisdictions involving a variety of financial institutions.
Connecticut was seeking its own high court case against Wachovia but the Michigan case was chosen for appeal after a Sixth Circuit Court of Appeals ruled for Wachovia. The debate is over whether state rules are preempted by the U. S. National Bank Act. Michigan’s rules simply require lenders to be officially registered, pay a fee, submit an annual financial statement, and to allow for a review of lending documents within that jurisdiction to protect the public from predatory and abusive lending practices.
Consequently, the high court decision comes only days after local legislative action to protect fair lending and community reinvestment within this city. Philadelphia City Council unanimously approved legislation that would require its approval of payroll depositories. The new law is consistent with Council’s authority under the City’s Home Rule Charter. Council has the authority to choose depositories and to establish criteria for those institutions to be authorized to receive City deposits. City Council also has the responsibility, in establishing depository relationships for thousands of city employees, to consider the fair lending and community reinvestment record of city depositories.
Wachovia, and its predecessors, have held the City’s payroll account for decades. In recent testimony before Council, the City Treasurer stated that this monopoly has existed simply because the bank and its predecessors were the largest financial institutions in the city. This current city administration has wisely reconsidered that policy and under the new law would issue a request for qualifications and proposal for payroll deposits.
Although Wachovia held an average daily balance in the last fiscal year amounting to seventy-five percent of City cash deposits, the largest city depository still privately challenges local authority with regard to establishing fair lending criteria for city depositories. The City is not attempting to regulate lending within its jurisdiction as several states have rightfully done but has limited its action to financial institutions that wish to receive local taxpayer money. It would be irresponsible to ignore the fair lending record of city depositories.
Wachovia has threatened to sue the City of Philadelphia for establishing its own fair lending policies but it looks like Michigan beat us to the United States Supreme Court.