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Judge halts Spitzer probe of home lending

New York Attorney General Eliot Spitzer's efforts to quiz major banks over the fairness of their home lending practices were halted Wednesday when a U.S. District Court judge ruled this was federal jurisdiction.
/ Source: Reuters

New York Attorney General Eliot Spitzer's efforts to quiz major banks over the fairness of their home lending practices were halted Wednesday when a U.S. District Court judge ruled this was federal jurisdiction.

The U.S. Office of the Comptroller of the Currency (OCC), part of the U.S. Treasury Department, and the Clearing House Association, an association of banks, are suing Spitzer over his bid to investigate whether banks charge minority borrowers more for mortgages.

At issue is whether federal regulators have primary oversight of lending practices, or whether states may enforce their own, stricter laws with federally chartered banks.

On Wednesday, Judge Stein ruled a questionnaire sent to banks by Spitzer was prohibited under the National Bank Act and enjoined the New York attorney general from starting any legal action against the federally-chartered banks.

The ruling was a loss for Spitzer, who is renowned for policing Wall Street and the insurance industry.

"Judge Sidney Stein ruled against our office, but we will appeal," said Spitzer spokesman Brad Maione.

The American Bankers Association (ABA) said Wednesday's decisions validated the OCC's position as the primary regulator for national banks.

"Their impact will be far reaching. Not only do the decisions address whether a state attorney general can exercise its visitorial powers over national banks, they affirm the OCC's pre-emption regulation," ABA Chief Executive Edward Yingling said in a statement.

He pointed out that this case did not question the applicability of a state's consumer protection laws to national banks, but simply answered the question of who can and should enforce the laws.

Judge Stein is also overseeing the separate lawsuit filed members of the Clearing House Association.

Spitzer's clash with the OCC began in April when he contacted major banks with lending businesses in New York requesting credit scores for minority borrowers and how the banks determined mortgage rates.

Spitzer said he wanted to see if the banks were discriminating by race.

The OCC claimed jurisdiction in this area and in the U.S. court challenged Spitzer. Spitzer has publicly faulted the OCC for not doing enough to protect consumers.

The banks and the OCC have argued that banks should be subject to a single set of laws and regulations. Working with potentially thousands of regulators would increase the banks' business costs and therefore boost borrowing costs for consumers, the banks have argued.

But several advocacy groups, including the National Association for the Advancement of Colored People, have supported Spitzer's lawsuit. (Additional reporting by Belinda Goldsmith)