Predatory lending: Who's watching your back?
By Laura Bruce • Bankrate.com

There's a turf war waging between federal and state regulators, and the nation's consumers may be the losers.

It's centered, in part, on consumer protections against predatory lenders and whether nationally chartered banks should have to abide by state laws targeting predatory lenders. But it's much more than a turf war between governments, because it could mean that the amount of protection you get against predatory lenders will be reduced.

If your credit is less than stellar and you want to buy a house, you may end up with a subprime mortgage. You'll pay a higher interest rate than someone with top notch credit. That's fair; the lender gets a little extra for taking the added risk of lending money to someone with a riskier credit rating.

But the legitimate subprime lending industry has been infiltrated by unscrupulous companies that make predatory loans -- loans geared to keeping you in hock to them forever.

The national Home Owners Equity Protection Act is meant to protect homeowners from predatory lenders. But many states say HOEPA doesn't go far enough and have enacted their own regulations.

The Office of Comptroller of the Currency charters, regulates and oversees national banks -- banks that have federal charters as opposed to state charters. The OCC says it supervises some 1,900 national banks nationwide. Easily identifiable by the word "national" in their bank titles or the letters N.A. or NT&SA after them, national banks represent about 28 percent of all insured commercial banks in the United States, or 57 percent of the total assets of the banking system.

The OCC started the turf fracas when it announced that it's too difficult for national banks to follow different anti-predatory lending regulations in each state in which they operate. Therefore, national banks need only adhere to national regulations. In essence, the OCC said national rules against predatory lending will preempt state rules when it comes to national banks.

States that have enacted their own anti-predatory lending regulations howled.

"The OCC's actions are a thinly disguised attempt to shield national banks from important state consumer-protection laws and to entice state-chartered banks to obtain a national charter and seek the immunity that the OCC is offering," said New York attorney general Eliot Spitzer in a December 2003 statement.

"The OCC", says Spitzer, "cannot, by administrative fiat, take away protections to which New York consumers have always been entitled, nor can it take away states' powers to enforce long-standing laws."

In an August 2005 statement, Spitzer reiterated the same sentiment: "The OCC's effort to shield national banks from vigorous enforcement of New York's civil rights laws is shameful and indefensible," he says. "The OCC should be encouraging efforts to obtain compliance with civil rights laws, not blocking those efforts."

The OCC has a different take. Kevin Mukri, OCC director for press relations, says the OCC is not overstepping its jurisdiction.

"We're talking consumer choices," says Mukri. "If a consumer chooses to be a member of the national banking system they know the protection they'll get. On our Web site we have the rules, the protections and actions the OCC has taken. We feel it gives very strong protection to consumers. It doesn't matter whether you're in California or New York, or anywhere in between, the same thing applies."