Attorneys general must go to court to probe national banks

NEW YORK -- In what was viewed as a victory for consumer and civil rights groups, the U.S. Supreme Court on Monday ruled that state attorneys general have a right to investigate national banks for lending discrimination.

In the ruling, Justice Antonin Scalia said federal banking regulations didn't prevent states from enforcing their own fair-lending laws. It was a win for the New York attorney general's office, which had tried in 2005 to investigate national banks to see if they were racially discriminating in their residential real estate lending practices.

Monday's "ruling confirms effective financial-reform legislation must ensure that both state and federal regulators can take decisive action against lending discrimination wherever and whenever it occurs," says John Payton, president of the NAACP Legal Defense and Educational Fund.

Justice Scalia said that state attorneys general could bring enforcement actions against the banks in court, even though they couldn't issue executive subpoenas to them. The ruling was a setback for the national banking industry.

"The long-term effect of this ruling is to create a patchwork of 50 state enforcement actions," says Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a trade group that represents the largest banks.

The case started in 2005, when Eliot Spitzer, then New York attorney general, sent letters to Citigroup, Wells Fargo, JPMorgan Chase, and other national banks for information about their lending practices to determine whether the banks had violated the state's fair-lending laws.

In response, federal bank regulator the Office of the Comptroller of the Currency and a group representing the national banks sued to block Spitzer's investigation and won. The banks said they were regulated by federal authorities, which precluded state investigators from any enforcement actions.

However, New York asked the Supreme Court to overturn the federal appeals court decision. The appeal was supported by the other 49 states.