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In the Public Interest

States' Rights
March 7, 2003

For decades Republicans and conservative Democrats were vehement in their defense of states' rights. Federal legislation on everything from civil rights to gun control to environmental and health safeguards-and a host of other consumer protections-have faced vigorous opposition centered around the argument that such issues were the province of the states, not the federal government.

Now we see the players rapidly changing game jerseys. Coalitions formed among Republicans and conservative Democrats are attacking states' rights and beating the drums for federal laws to preempt-wipe out-state laws, particularly those that might in any manner involve regulation of financial corporations and other business interests.

Weary of watching the Congress consistently sell out to business interests, consumers have been going to their state legislatures and state attorneys general in an effort to enact and enforce state and local laws that will fill the gap and provide citizens basic protections in the marketplace.

This has angered the Washington lobbyists who see the grass roots movements threatening what they have bought in recent Congresses. Some state governments, once patsies for whatever the dominant economic interests wanted, have been showing some backbone and a willingness to provide consumers with basic safeguards involving such things as privacy, lending scams, arbitrary and excessive fees, access to financial services, health care, control of tobacco, stock fraud and other deceptive practices.

As a result, preemption of state laws is becoming a cottage industry for corporate lobbyists in Washington. Members of Congress and their campaign contributors who used to play homage to the sanctity of "states rights" are now more likely to be talking about the need for "national uniform standards." Translation, the indentured U. S. Congress has become much more dependable than many state legislatures in bending to the desires of corporations and other special interests.

The regulatory agencies have picked up the same tune. The king of the preemption campaign at the regulatory level is Comptroller of the Currency (OCC) John (Jerry) Hawke-a long-time Washington bank lawyer-lobbyist who now regulates national banks. Hawke has his legal staff working overtime defending banks and arguing that the National Banking Act allows federally-chartered institutions to thumb their noses at state and local consumer laws.

Hawke has gone so far as to issue a directive warning national banks to immediately notify him if any state law enforcement official tries to obtain information on their operations. The warning is aimed at blocking efforts by state attorney generals who have launched vigorous efforts to protect consumers from lending scams and deceptive practices.

Hawke's agency, of course, has a vested interest in using his office to help banks wipe out protections for consumers. By using the National Banking Act against consumers, Hawke has a giant carrot with which to encourage federally-chartered banks to remain under the his jurisdiction and continue to pay millions of dollars in fees to fund his office. Hawke and his predecessors have always been very sensitive to the ease with which banks can switch charters and slip out from under his regulatory power.

While OCC and its sister agency-the Office of Thrift Supervision-have attempted to preempt a variety of state laws on credit cards, ATM fees and life-line banks accounts, the present focus of the banks and the regulatory agencies are on the increasing efforts of states to control predatory lending practices and their outrageous gouging. Under attack by the lending industry are strong anti-predatory efforts by states like Georgia, North Carolina and New York as well as more limited moves in Connecticut, California, Florida and Pennsylvania. Legislatures and state attorneys generals in other states are eyeing the chances for the adoption of safeguards to protect consumers-particularly low and moderate income citizens-from the lending predators. Facing these grass roots efforts, the predatory lending industry is coming to Congress in an effort to preempt the state and local laws. Point man for the effort is Representative Robert Ney of Ohio. In press releases and newsletters back to his constituents in Ohio he claims that his bill is actually an effort to set "national standards" against the scam lending operations.

Not so, say most of the nation's leading consumer, community and civil rights organizations. They see the Ney legislation, instead, as a Trojan horse designed to enact a limited and loophole-filled federal law which will end any chance of states and local governments to provide tough protections that will close the door tightly against predators.

In a letter to Congress, the consumer organizations warned: "Congressman Ney's bill will not address the predatory lending problems facing our communities while it undermines existing statutes and any future attempts by state and local legislators to protect consumers from predatory lenders."

On March 17, the National Association of Attorneys General (www.naag.org) will meet in Washington and federal usurpation of stateauthority will be very much on their mind.

Congress has done nothing to stop the unfair, destructive and cruel exploitation of borrowers by predatory lenders. Now, it appears poised to wipe out whatever protections that local and state governments can provide for their citizens. With special interests dominating this Congress, it is hard to identify any single attack on consumers as "the most outrageous," but the Ney bill can certainly claim a prominent place in the anti-consumer hall of shame.