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

Just a few months after the issuance of the letter preempting the GFLA, the OTS issued a second preemption letter regarding New Jersey's abusive lending practices legislation, the New Jersey Home Ownership security Act.76 Following its reasoning in the GFLA preemption order and using identical language, the OTS reaffirmed its conclusion that it alone is authorized to impose conditions upon federal savings associations' lending activities.77

C. Why Exclusive Federal Regulation of Predatory Lending Is Insufficient

Because of the broad preemptive scope of these OCC and OTS determinations, it is unlikely that state restrictions on predatory practices will ever be effective against federal savings and thrift associations, thus underscoring the importance of finding ways to regulate such practices without interfering with the powers of the OCC and OTS to regulate in this area. In addition to these preemption determinations, the OCC has also recently released a proposed rule that may allow it to completely preempt the field of regulation of national bank real estate lending, therefore making it impossible for states to take any kind of action against national banks operating within their borders.78 While it is true that the OCC and OTS preemption determinations do not serve to remove the enacted statutes from the states' books, they do substantially limit the ability of states to effectively legislate against abusive lending practices in two ways.

First, the GFLA contains a parity provision that serves to place state-chartered banks on the same level as federally chartered banks with regard to regulatory strictures.79 If the GFLA provisions are preempted on a federal level so that they no longer apply to nationally chartered banks, those provisions also do not apply to state institutions, which nullifies the law's effect against state lenders as well as national lenders.80 The Georgia Attorney General has issued an opinion that the parity provision has taken effect as a result of the OCC's decision; the GFLA, therefore, no longer applies to state banks or federal banks, which leaves regulation of abusive lending practices unchanged from the way they were prior to GFLA's enactment.81 Similar results may follow for states that enact predatory lending statutes with parity provisions that resemble the one contained in the GFLA.

Second, even in situations where state predatory lending laws do not contain parity provisions like Georgia's, and the law remains in effect against state banks, OCC preemption means that state regulation cannot reach nationally chartered financial institutions. OCC preemption and its recent proposed rulemaking, mentioned above, which could potentially allow the OCC to occupy the field of national bank real estate lending and totally preempt the states from regulating national bank real estate lending, it is becoming increasingly unlikely that federally chartered financial institutions will be subject to state predatory lending measures in the future.82 As the problem of predatory lending continues, and federal agencies show a willingness to preempt state regulations that affect nationally chartered financial institutions, states that have enacted legislation similar to Georgia's are left with fewer options for protecting at-risk consumers in the subprime market.