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

Specifically, the OCC stated that lending practices are deceptive if:

[f]irst, there is a representation, omission, act, or practice that is likely to mislead; [sjecoiid, the act or practice would be likely to mislead a reasonable consumer (a reasonable member of the group targeted by the acts or practices in question); and [t]hird, the representation, omission, act, or practice is likely to mislead in a material way.146

A practice is considered unfair under the FTC Act if: "[f]irst, the practice causes substantial consumer injury, such as monetary harm; [s]econd, the injury is not outweighed by benefits to the consumer or to competition; and [t]hird, the injury caused by the practice is one that consumers could not reasonably have avoided."147 Because the terms "deceptive" and "unfair" are defined somewhat broadly under this standard, states can tailor solutions to address the specific types of abusive practices that are occurring within their jurisdictions.

Finally, in order to ensure that actions brought under state deceptive trade practices acts have a deterrent effect on loan sellers and those actors engaging in predatory practices, state lawmakers should enact provisions giving consumers a private right of action where one is not explicitly given.148 Many state deceptive trade practices acts explicitly allow a private right of action, but others do not.149 Because states often do not have the necessary resources to investigate every violation and abuse of state laws, state lawmakers should amend state acts to allow private rights of action. Also, some states do not include credit as a good and lending as a service that is covered under state deceptive trade practices acts.150 In such instances, the necessary amendments should be made in order to ensure adequate enforcement. Enforcement by states of deceptive and unfair trade practices acts would therefore be an effective deterrent that would not interfere with national bank lending powers but would allow the states to tailor the remedy to fit the problems that they are facing.

V. CONCLUSION

This Comment illustrates that abusive and predatory lending practices continue to be a significant problem in many parts of the country. State and federal regulators are at odds in determining how to deal with the problem. The OCC's recent order preempting the GFLA, its recent rulemaking which may result in the OCC occupying the field of regulation of national real estate lending, and the OTS's preemption orders on the same topic provide evidence that it is unlikely that states will be able to enact legislation prohibiting specific lending terms and conditions that will be effective against federally chartered banks. Federal regulatory agencies seem willing to preempt any law that interferes with a nationally chartered financial institution's power to make real estate loans.

It is therefore important that states develop remedies that do not run afoul of OCC and OTS preemption principles. Because a significant portion of predatory practices are engaged in by nonbank sellers of loans that are regulated by states, state legislators should develop laws that target sellers of loans, such as heightened licensing requirements for loan originators, and the creation of state agencies that enforce such requirements and punish lending abuses. Additionally, states can effectively stop predatory practices through enforcement of state unfair and deceptive trade practices acts against federal and state-chartered financial institutions. These solutions can be taken without impinging upon federal real estate lending powers. Using these tactics, states may prevent predatory lending abuses without interfering with national banking powers.