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Archive for Tuesday, November 28, 2006

Bank case draws interest

Federal, state lending rules at issue before Supreme Court

November 28, 2006

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A North Carolina-based bank wants to break the shackles of state regulations and instead adhere only to federal rules when it comes to running mortgage-lending operations nationwide.

And it's asking the U.S. Supreme Court to grant that permission, in a case pitting the federal government against Kansas, 49 other states and the District of Columbia.

At stake: Whether a business - any qualifying business, really - can rely on a single set of federal rules rather than maneuver through a patchwork of more than 50 sets of restrictions, each devised by regulators who are closer to the consumers such businesses serve.

Wint Winter Jr., a Lawrence resident who knows a thing or two about state laws, state regulations and mortgage lending, doesn't appreciate Wachovia Bank's attempt to circumnavigate the will of Kansans or residents in any other state.

"It could make the state regulatory dog toothless, and that's not a good idea," said Winter, who is president, CEO and general counsel for Peoples Bank and serves as a member of the Kansas State Banking Board. "I'd say that our economy is based mostly on smaller businesses that pride themselves on understanding the local business climate, knowing local consumers and competing locally. People like us - the smaller guys - are always fighting the big guys, and they're always looking for a way to make their lives easier.

"If they want to compete, they should learn the local customs, the local laws. It's another attempt by the big guys to sort of homogenize our country. That's not good for the economy and not good for the consumer."

When the Supreme Court hears oral arguments Wednesday, battle lines will be clear.

Wachovia and its allies in the national banking industry are set to continue arguing that they shouldn't be burdened by having to adhere to state rules that govern mortgage lending.

The National Banking Act of 1864 takes precedence over state regulations, they say, and that view already has been upheld by judges at district and circuit court levels.

Having to follow additional state rules promotes inefficiency, Wachovia and its supporters say, driving up costs to borrowers.

But the states counter that the federal regulator at issue in this case - the Office of the Comptroller of the Currency - isn't equipped to protect consumers from predatory lending practices. Kansas and other states have moved to curb the abilities of lenders to charge mortgage prepayment penalties and other fees, regulations that state leaders say should remain in control of people closer to affected consumers.

States and their supporters argue that siding with Wachovia could prompt other industries to seek federal "pre-emption" from rules, regulations and laws set by states and local governments that could relate to workplace safety, auto emissions and other matters.

Winter, who served as a state senator from 1982 to 1992, hopes the Supreme Court sides with the states. The efficiency argument, he said, doesn't always hold up.

"It would be a lot more efficient to drive across the country if you didn't have different speed limits in different states," said Winter, whose own bank expects to write 1,000 mortgages for $150 million this year in Kansas, Missouri and New Mexico. "I definitely think that state authority is a good thing. The feds just don't have a stiff set of regulations to protect the public in this industry."

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