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

Furthermore, increased regulation of predatory lending practices on the federal level will not adequately protect consumers. Although it is possible that federal regulatory agencies and Congress could enact additional legislation that applies to nationally chartered lending institutions and heighten existing standards under federal laws such as HOEPA, TILA, and RESPA,83 significant changes to the federal regulatory structure that address predatory lending practices have not yet been put in place. As noted by the Departments of Treasury and HUD throughout their report on the topic, the federal scheme for regulating predatory practices contains gaps and could be adjusted significantly to provide adequate protection.84 States enacted their laws, at least in part, to fill the federal gaps, and to date the federal government has made no significant changes to address the predatory lending problem.

Even if the federal scheme is changed significantly, the problem is complicated by the fact that many federal regulations would not apply to state banks. The American dual banking system gives the authority to regulate a bank to the government that chartered it. 85 Although many of the federal laws apply to state and federal banks alike (such as HOEPA, TILA, and RESPA), the "day-to-day" oversight of state-chartered banks is performed by state regulatory agencies, while federal banks and other financial institutions are regulated solely by the OCC and the OTS. S6 If Congress fails to enact additional protections or amend existing laws that are applicable to both state and federal banks, and if states do not find solutions to the predatory problem that are effective against both state and federal lenders, such as those suggested in Part IV, predatory practices may remain largely unregulated.

However, additional action by Congress in this area may not be desirable and, at any rate, would not be a panacea. A blanket federal solution is not adequate or necessary to solve the problem; each jurisdiction requires a distinct response that is tailored to fit the situation. The Treasury-HUD Joint Report notes that "the exact nature of abusive lending practices often varies from community to community," and concludes that "[s]tate regulators and enforcement agencies . . . may be best equipped to understand the roots of the problems that exist within their own borders."87 For instance, empirical evidence suggests that the predatory lending problem in urban areas with large minority communities is different than the problem that exists in areas where such communities do not exist.88 The predatory lending problem in urban, minority communities results from the higher rate of subprime lending that occurs in those areas.89 By contrast, the problem in Utah, for example, is much different. Although many borrowers in Utah are being saddled with loans they cannot handle-a common practice among predatory lenders-the fraud in that jurisdiction often includes participation by the borrowers themselves, who assist mortgage brokers in the inflation of incomes and other such practices in order to be approved for a home they could not otherwise afford.90 Problems faced in various jurisdictions require a distinct regulatory response.