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Preemption Chutzpah

posted by Adam Levitin

Elizabeth Warren draws our attention to an astonishing example of banking industry chutzpah--claiming preemption protection against state foreclosure laws. Not only has no one ever historically believed that state foreclose law was preempted; the OCC's preemption reg's specifically carve out state debt collection law from preemption. There's no conflict preemption here, and given specific mortgage preemption laws like DIDMCA and AMTPA that preempt state usury limits on some mortgages and limits on exotic mortgage structures, it is hard to see how there is general field preemption or the like.

The preemption argument is even more chutzpadik, though, because banks hold only a small percentage of mortgages. Most mortgages are held by securitization trusts. The last time I checked, they are not federally chartered financial institutions nor are they operating subsidiaries or agents of federally chartered financial institutions. Thus it is utterly beyond me how anyone could claim that preemption applies to mortgages owned by securitization trusts, even if the mortgages were originated by national banks and are serviced by them. The preemption claim here doesn't even pass the straight-face test. As unbelievable as it is, though, perhaps legislation should clarify this just to, um, foreclose possible preemption arguments.

I'm curious whether the same financial institutions pushing the preemption claim are also the same institutions that are members of the HOPE Now Alliance, who have supposedly committed themselves to working to modify loans rather than foreclose. The preemption agenda is simply inconsistent with a commitment to efforts to avoid foreclosure.


No surprise here..The OCC and every national lending institution have been pushing this theory forever...

Wasn't it the OCC, in fact, who shielded two of the "HOPE NOW" participants from having to cough up any information on their "clients'" participation in HOPE NOW? They certainly were of no help to me when I contacted them with regard to my own situation. Come to think of it, I believe it was a U.S Senator that contacted them on my behalf and they STILL were of no help....

I'm really getting tired of federal agencies that are supposed to ultimately be protecting the citizens of the United States, instead SCREWING the citizens of the United States and leaving them swinging in the breeze WHILE holding the bag....

Thank you for this heads up and for your ever-cogent blog. It would be fun to see Barney Frank get hold of this. The only way the federal regulators seem to do something to protect consumer interests is under cover of pressure from Congress. That is my impression of why the regulators are proposing rules to address certain credit card practices now. The regulators are generally talented and well-meaning people, but face it, they live in the bankers' world and are by charter more concerned with safety and soundness, which has come to include protecting their clients from any regulation that can have any bearing on that.

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