Blumenthal Blasts Feds on Lending Abuses

April 30, 2008

Connecticut Attorney General Richard Blumenthal criticized federal regulators for standing in the way of state efforts to combat subprime lending abuses.

“Federal agencies have been AWOL and even more insidiously the federal government has increasingly blocked states from prosecuting cases against these kinds of predatory lenders,” Blumenthal told a Senate panel Tuesday.

Original article at Connecticut Post

In particular, the Office of Comptroller of the Currency has scuttled state consumer protection laws saying that they do not apply to federally chartered “national banks.” While claiming its authority to oversee those institutions, the OCC has failed to enforce federal regulations even as the mortgage crisis deepened, Blumenthal said.

In 2002, Connecticut and 18 other states went after Household Finance alleging the subprime lender had engaged in predatory lending practices. The company was compelled to pay consumers nearly $500 million.
Had the states gone after Household Finance today they would have come up empty because the company now holds a federal charter, Blumenthal said.

“We could bring those actions then but now they are beyond our jurisdiction,” he said.

Blumenthal urged the Senate Interstate Commerce, Trade and Advertisement Tourism subcommittee to endorse legislation that would give state attorneys general the authority to prosecute federal consumer protection laws. North Dakota Sen. Byron Dorgan, who chairs the subcommittee, has sponsored legislation that would include such authority as well as strengthen federal regulatory enforcement.

Dorgan appeared particularly miffed that the Federal Trade Commission has failed to go after predatory mortgage lenders in a forceful manner. The agency has brought only 22 actions focused on the mortgage lending industry alleging that they were engaged in “unfair or deceptive acts and practices.” Through those cases, the FTC returned $320 million to consumers.

In just two cases, Blumenthal and other state attorneys general returned nearly $1 billion to consumers – $500 million from Household Finance and $325 million from Ameriquest. Meanwhile, Dorgan noted that the Internet is replete with Web sites advertising unrealistic loans for those with poor credit histories.

“Nothing has changed very much,” Dorgan said. Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, said that her agency has been asking itself if it could have done more to intervene. Moving forward, she said, the agency is shifting resources into enforcement of financial practices.

Parnes also said that her bureau has ongoing investigations to go after those seeking to prey on individuals caught up in foreclosures through shady loan modification programs. Credit Suisse analysts last week estimated there may be as many as 6.5 million foreclosures by 2012, and direct mortgage losses will exceed $500 billion according to the International Monetary Fund.