Peterson on Federal Preemption

A while back, I posted on the upcoming Supreme Court case of Watters v. Wachovia Bank, where the court will decide whether the OCC had the power to preempt state consumer laws. For those Credit Slips readers who are interested in this topic . . . . well, wait a second, all Credit Slips readers should be interested in this topic. Federal preemption of state commercial law is quickly becoming (if it not already has become) the big issue in consumer credit regulation. Chris Peterson of the University of Florida has a new essay exploring the issues--"Preemption, Agency Cost Theory, and Predatory Lending by Banking Agents: Are Federal Regulators Biting Off More than They Can Chew?" From the first paragraph of his conclusion:

By attempting to extend preemption to the agents of depository institutions, banking regulators have removed from state regulation complex, unpredictable, and potentially harmful relationships. The shifting incentives of agents have confounded scholars, regulators, and judges—not to mention economists—in a tremendous cross section of legal relationships. Even with the most carefully devised monitoring and bonding expenditures, independent agents cannot be expected to always act in the interests of the depository institutions they represent. It is less likely that independent agent’s interests, even when constrained by monitoring and bonding, will happen to coincide with the welfare of the American people.

The paper is available on SSRN at http://ssrn.com/abstract=932698. The essay is a quick read and provides a great introduction to the issues involved.