States urge feds to step up consumer protection

By John Poirier

COEUR D'ALENE, Idaho (Reuters) - State officials who recently lost a major court battle over bank regulation on Wednesday called on federal counterparts to increase efforts to protect consumers from predatory lending practices and fraud.

In April, the U.S. Supreme Court ruled that Michigan could not regulate lending by a mortgage subsidiary of a national bank, blocking the state's efforts to enforce strict consumer protection laws on these subsidiaries.

The 5-3 court ruling was seen as a blow to states' efforts to fight predatory lending and mortgage fraud at a time when the U.S. mortgage market has been roiled by worries about rising default rates in subprime mortgages.

Linda Watters, commissioner of the Michigan Office of Financial and Insurance Services, lost the case, which left power with the federal Office of the Comptroller of the Currency (OCC).

"As a commissioner of Michigan, I certainly want to see them perform," Watters said, "and perform at a very high level to protect consumers."

The OCC dismissed critics who said that a federal right to enforce banking rules may result in the spread of predatory lending practices to national banks and their units.

Watters, speaking at a conference of state banking regulators on Wednesday, also said she will continue to support the OCC's efforts.

"Hopefully they can do it very well," she said.

Worried that the ruling weakened state enforcement powers, some U.S. lawmakers saw the ruling as a reason to increase enforcement powers at the federal agencies, including the OCC.

In May, House Financial Services Committee Chairman Barney Frank and House Energy and Commerce Committee Chairman John Dingell sent a letter to federal agencies, including the Federal Trade Commission, to urge them to strengthen rules to protect consumers against unfair and deceptive practices involving a wide range of financial services.

Neil Milner, Conference of State Bank Supervisors president, on Wednesday praised Comptroller of the Currency John Dugan for being more "pro-consumer" and for beefing up the agency's consumer complaint center in Houston.

But he said states will need to push U.S. lawmakers to see if "a federal system is going to be able to ... replicate (what states do) with a few people and have that same kind of responsiveness to the individual customers" as what thousands of people at the state level do for consumers.

OCC officials say the agency has more than 1,700 national bank examiners that monitor consumer compliance issues.

The agency has about 70 people who also speak Spanish at a consumer complaint call center in Houston, which is open 12 hours a day and reachable through a toll free number, via E-mail, fax or by mail.