Eliot Spitzer, the governor of New York and that state’s former Attorney General, has written an Op-Ed for the Washington Post in which he claims that the Bush Administration used the Office of the Comptroller of the Currency to prevent states from stopping the predatory lending practices that lead to the current financial crisis:
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
Spitzer claims that the OCC invoked “a clause from the 1863 National Bank Act” to preempt state predatory lending laws and prevent the states from protecting consumers against abusive loans.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Spitzer says the banking industry claimed at the time that consumer protection laws would have denied consumers access to credit.
Predatory Lenders’ Partner in Crime [Washington Post] (Thanks, AB!)
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@Snarkysnake:
That’s fine, but that’s not the situation Spitzer is talking about.
What if, after they said, “Congratulations, we’ll close when you’re ready” you learned that the bank was misrepresenting the terms of loans, packing loans with undisclosed charges and fees, and paying illegal kickbacks?
And what if you found out that the State AG was coming down hard on this bank? You’d be happy, right?
And the, what if you learned the Federal government, through the OCC blocked that law suit from your State AG?
Then what would you think?
——–
Generally speaking (i.e, not directing this at Snarkysnake), what people fail to understand is that, (1) regardless of how smart you (think you) are financially, if you are like 99% of Americans and your bank wants to screw you, your bank can screw you. Buried on page 45, subsection (T)(12)(f)(iii), there will be something you didn’t understand or overlooked and it will wreck you. Not every agreement has that section (obviously), but if a lender wants to, they can take you to the cleaners.
That’s why AGs and other government agencies exist. To stop these kind of practices that most consumers, regardless of the amount of “personal responsibility” they exercise, cannot prevent.
(2) Forget the “personal responsibility” mantra. It misses the point. The State AGs were attempting to enforce the law. The OCC said they could not. As a result, the law breakers contributed to a financial crisis. Indeed, the OCC stopped Spitzer from even investigating. That’s the point.
@Flame: Flame, how could they have no idea why their ARM is going up? The only way this could true is if they simply chose to sign their mortgage forms without reading them. There is a separate ARM disclosure required by law that details what could happen if rates go up and also provides a historical example of what the rates have done. This is not the fault of the lender, and doesn’t mean they are the victims of fraud, or that loan terms were mis-represented.
It’s quite likely these folks knew the potential consequences, but it’s a lot easier to tell everyone today, “it’s not my fault”, “nobody told me this could happen”, despite the fact their signature indicates otherwise.
I think this is one of those cases were there are already laws in place that are meant to protect consumers, but even with those laws in place, some people are still going to make bad decisions. It’s impossible to completely legislate that part of the equation.
@Saboth: Sorry, but the argument regarding the RIAA is an awful one. All you need to do is look at all the democratic legislators from California that spend most of their time doing the RIAA’s bidding to make the whole RIAA thing any kind of Republican/Democrat argument.
@bnb614:
ARRRGGGGG!!!!! WTF i am not saying dumb down everyone, what i am saying is some poeple really do need help because they are not smart enough to understand. You cant edua-ma-kate everyone.
@A_B:
Hmm, “making loans without regard to consumers’ ability to repay” Putting aside the fact that this makes poor business sense, what about the consumer making a decision to take on debt that they don’t have the ability to repay? I’m quite certain that there are broker’s out there that made loans to people that they didn’t think could repay the bill, and that the secondary market purchased those loans. They shouldn’t have, but I’m not sure how this is the Bush admins fault, and those companies that made the bad decision are now paying for it. Yet, we are still left with a consumer who made a bad decision, yet apparently that too is somehow Bush’s fault.
“Making loans with deceptive teaser rates”. Please explain how these are deceptive. Did they not provide a disclosure that indicated the terms of the loan, including when rates would rise. I find that VERY unlikely. The fact of the matter there is nothing deceptive about teaser rates. However, if a consumer is so ignorant to think that they are get a 2% mortgage when the rest of the country is getting a 5% term, then perhaps we have a different issue. Maybe if we spent education dollars on teaching people to manage their finances and deal with real world issues instead of diversity and the like these folks wouldn’t be so likely to continue making these bad decisions. Oh, and also if you would quit telling them it’s not their fault when they screw up that might also help.
“Packing Loans with undisclosed charges” I’ll be the first to admit that there are a LOT of screwy charges on just about every mortgage I’ve ever taken out. However, I think it must be just about impossible for these to be undisclosed. They all appear on the HUD-1 settlement statement. If the mortgage co. has added a charge you don’t think is right, dispute it and refuse to sign the papers. On top of that it’s highly unlikely that these extra charges have any meaningful impact on the current meltdown. Are you implying that because someone paid an extra $1,000 in closing costs that’s caused them to default on their mortgage?
Mark my words, Spitzer is going to be the first one in line complaining about the tight credit policy all the banks and mortgage companies are putting in place as a result of this meltdown. He’ll be crying about how the poor and working class can’t get loans because the evil corporations make it too hard to qualify.
When are people going to learn that as soon as a politician opens his mouth to bash a person of the other party, all common sense goes out the window, and it’s bash for bashings sake!
@A_B:
I’ll tell you what I think… Low ,fixed rate. How complicated is that ? That was the point that I was trying to make. 90% of the argle bargle in the mortgage arena could have been avoided if buyers had taken the bird in the hand instead of…God, what WERE they thinking ? That rates would go to zero ? Fixed rate mortgages are more a more competitive market than these ARM’s (a lot fewer moving parts make them more transparent)
Last thought: When rates hit rock bottom in ’03/’04 ,what do you think that wise corporate treasurers did ? That’s right. They issued long term debt at those low rates .That’s why they are ongoing businesses. Home buyers/owners could have done the same thing if they chose.
Personal responsibility is a nice theory. I guess we shouldn’t have any cops, because everyone should be “personally responsible” enough not to steal cars or commit robberies. Right? Wrong.
Pointing to “personal responsibility” would be fine if this was just a weepy tale about irresponsible home buyers who only hurt themselves. But this thing is wrecking the economy for the rest of us, and it could have been prevented.
Calling the practice “predatory lending” is probably a misnomer, it should have been called “foolish lending”, because that’s what the banks did. They lent money to people with no way to repay it, who are
f course” goint to take the loans.
It’s almost the same as leaving your keys in the ignition of a very nice car, parked in a bad neighborhood. Sure, the guy who takes it is a greedy bastard, but that doesn’t change the fact that you (the bank) just lost your car. Multiply that scenario by a few million and that’s what’s happened. We the US consumer/taxpayer will foot the bill for it, one way or another.
Also, isn’t it strange that, at any other time in history, mortgage companies would have never loaned these people the money to buy a house at these terms?
@MyCokesBiggerThanYours: I dunno Coke, if the government isn’t my personal nanny, then why is our government so bloated, keeping tabs on what I download, who I marry, which religions are recognizable, what age I drive at, whether I have health care, which drugs I can or should use, etc. etc. Face it, the responsibility of a government is to act like a large, overarching granny that (should) try to balance the rights and freedoms of the whole, while balancing them against the rights and freedoms of the individual. A big part of the problems seems to be, that those in power tend to look after them and theirs at the expense of the masses. So instead of a concerned grandparent, we have a coked out, drunk AHole telling us to dig the ditch deeper, while he sits on the porch of his big white house doing blow, drinking Jack Daniels and taking a lot of vacations.
@PotKettleBlack: I need to take umbrage at your assertion that Bush’s Presidency will go down as “the worst of the previous 100 years.” I take it that you weren’t alive during the Carter Administration, which gave us true “predatory” lending rates of >15%, inept consumer protections, and general fiscal malaise. Did you know that the Carter Administration set price controls on gasoline, which led to short supplies and long lines at the gas pumps? I specifically remember waiting in those lines, since I could only fill up on even days as my license plate ended in an even number. Some bean counter even calculated that 150,000 barrels of oil were wasted each day under this hair-brained idea, as cars sat idling in line, waiting for their fill-up.
I’ve got grievances with the Bush Administration regarding their fiscal policies, but “the worst in the previous 100 years”? No way–Jimmy from Plains has him beat by a long shot!
At least Bush cant run for president again. Sorry its that glass half full thing.
If you think predatory lending equals >15% in 1977-1978 then you don’t understand the term predatory lending.
Predatory lending is: Any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices. Many of these practices are illegal, while others are legal but not in the best interest of the borrowers.
But I agree with you, all the people who complain about Bushie weren’t alive under Jimmy Carter. By far the worst president in my lifetime. There are people who are 24 years old who have never known economic hard times save for a little recession in the early 90′s when they were too young to know anything about it.
@woodenturkey: My oops for mis-reading the post…we are sympatico!
@PotKettleBlack:
It’s also a question of what criteria one uses for judging a presidency.
Worst for civil liberties: Wilson (Sedition Act, anyone?)
Worst subversion of the Constitution by legal means: FDR (Court-packing)
Worst political attacks against his political rivlas: LBJ (Goldwater wants to blow up your children, the Klan’s for Goldwater…)
Worst use of extraconstitutional military conflict: … LBJ again, with honorable mention for JFK.
Worst on the deficit: Reagan
Worst on corruption: Probably Harding (You want oil scandals? Look no farther than Wyoming)
Worst on the economy: FDR (the National Recovery Administration was little better than an attempt to impose centralized economic planning; the public works were probably a net gain)
Worst at keeping it in his pants and keeping it quiet: Clinton
Some pretty strong competition up there, just in the past century. Will history view Bush as the worst overall? I don’t know; I imagine it will largely turn on Iraq. Does anyone still blame Grant for the Panic of 1873?
Wow Bush did something that supported the people with the most money. Holy crap did I read that right? I thought he truly cared about the people of this country.
/sarcasm
@donnie5: PREACH IT, BROTHER! The entire problem stemming from the crash of the housing market is the fact that the FREAKING IDIOTS BORROWED MORE THAN THEY COULD EVER PAY BACK IF THE INTEREST ROSE! And now that their interest rates are correcting to what they should be, they cant afford it anymore. The moral of the story: Don’t spend more than you can pay back, and that includes the possibility of the rates rising.
@Oracle989: Whatever.
What you don’t understand is that the general public is just plain stupid.
Anyone who has worked in Customer Service knows this.
The bankers knew it was more than they could afford, do you think they mentioned this?
No where in the Constitution have I ever read, “The Executive Branch will protect all citizens from being stupid and unable to read the contract they sign”
Nor have I read
“The Executive Branch will bail out all companies that throw common sense away and make loans to people who obviously can’t repay them”
Give me a break! People need to take responsibility for their own actions.
So what if the borrowers are stupid and don’t read loan documents?
In essence the laws should have protected the taxpaying public by limiting the banks exposure to bad investments (subprime borrowers) This would have protected the taxpaying public -who are now going to have to pay for the corporate bank’s mistakes.
Remember that banks as corporations are not moral entitities- business ethics and what is legal are completely different also from what is moral.
so no personal responsibility needed, no experience or knowledge needed, oh yeah and if you mess up “its ok” someone will help you. no matter what and no matter how many times you screwed up. And the help is totally free.
Why are trying to freeze foreclosures for a year? Let them close. Look im sorry your an idiot and signed up for a 5 year interest only loan that was 3x as much as your previous rent. Didnt something click in your mind that “hey i can barely pay the interest, how can i afford to pay the whole payment?”
The slimy loaners who were fudging the data so people could get the loans are as much too blame as the morons who signed up for them.
Also why blame a person? Why not blame the executive branch people who actually messed it up. Congress!! why do you think they have a lower approval rating then georgie. /rant
@aaronk: true that. companies make $$ off of dumb people all of the time…then they get pissed when they find out.
it’s like why so many famous musicians are broke, because they don’t understand that they have to pay back the money the record company loaned them. they can either recieve some royalty payment like 13% all in (meaning they have to pay back the studio producer, the trainer, etc) or 8% net (they can keep all the money they receive and the record company will figure out who is owed what.) and what do most of them do? “oh…well..13 is larger than 8…so ill do the 13%”. then cry when they have all these people they have to pay back.
now…who’s fault is that?
I agree.
On a lesser note, Eliot Spitzer will not be judged favorably either.