So You've Been Preempted-What Are You Going to Do Now?: Solutions for States Following Federal Preemption of State Predatory Lending Statutes

Brigham Young University Law Review, 2004 by Childs, Christopher R

Other jurisdictions have also allowed deceptive trade practices acts to be used against lenders for various actions that were considered deceptive or unfair under their states' respective acts.137

Following the lead of the attorneys general in the FAMCO case and others, state regulators and prosecutors can bring actions under state trade practice laws in order to combat predatory practices employed by all types of lending interests, including mortgage brokers and federally and state-chartered banks. State deceptive and unfair trade practices acts can be enforced against national and state banks alike, regardless of the scope of the OCC's proposed rulemaking or any other preemptive action federal regulatory agencies take.138 As explained in Part III.A, the OCC reasoned in its order preempting the GFLA that the OCC had been given broad powers to regulate federally chartered banks' real estate lending powers under 12 U.S.C. § 371(a).139 National bank powers are limited to those given them explicitly by Congress, and Congress has not given them the power to engage in acts and practices that violate the FTC Act or are otherwise fraudulent.140 Enforcement by states of substantively similar state statutes does not interfere with any properly-given national bank real estate lending power and therefore cannot be stopped through federal preemption.141

The fact that state deceptive trade practice laws may not be identical to the FTC Act also should not hinder states' ability to prosecute violations without interference from federal regulators. Although state deceptive trade practice acts are often not identical to the FTC Act, they are, in most cases, substantively the same; where they are not, they can be amended to mirror the FTC Act.142 States can enforce deceptive trade practice acts for lending violations as is done in other contexts in which states enforce federal lending law. For example, Connecticut has restated and adopted TILA "almost verbatim," and Arizona has made it a state law violation to infringe upon the terms of "RESPA or the Consumer Credit Protection Act, which includes the Fair Credit Reporting Act, ECOA, and the Fair Debt Collection Practices Act, as well as TILA."143 West Virginia makes any violation of a "federal law regulating mortgage loan transactions" a violation of West Virginia law.144 Similar action can be taken in those states where mini-FTC Acts have not been adopted or in instances where amendments are necessary to bring state unfair trade practices laws in line with federal laws.

Because state acts are usually substantively similar and typically contain much of the same language as the FTC Act, states can use federal guidance in determining what sorts of deceptive and predatory lending practices can be combated under state unfair trade practices acts. In particular, states should follow OCC guidance in determining what is unfair and deceptive and should therefore subject mortgage sellers to prosecution under state deceptive trade practices acts. In a recent letter, the OCC reasoned that certain deceptive loan practices, including loan flipping and equity stripping, are deceptive and unfair under the FTC Act and will be prosecuted under the Act.145 This guidance is valuable to states because it assists state enforcement officers in determining what types of action can be prosecuted without concern for preemption by the OCC, in developing standards for which practices should be considered violations of their acts, and in deciding when to bring an action.