OTS preempts Georgia and New York predatory loan laws

The Office of Thrift Supervision has ruled that federally chartered thrifts are not subject to provisions in both the Georgia Fair Lending Act and a New York predatory lending law.

The OTS actions raise the question of whether the Office of the Comptroller of the Currency may preempt national banks.

Additionally, secondary markets have announced they will not buy loans from Georgia and a rating agency said they would not rate securitizations of those loans, prompting the Georgia legislature to reconsider its law which took effect Oct. 1.

At issue is assignee liability, included in both the Georgia and New York laws.

Supporters say removing the provision, as the Georgia legislature is considering, would gut the bill.

More than two dozen lenders have left Georgia since the law went into effect, and the National Minority Mortgage Bankers Association is also suing to block the law, along with residents who claim they have been denied mortgages, charging that the law denies credit to minorities.

Rep. Bob Ney, R-Ohio, the new Chairman of the Financial Services Subcommittee on Housing and Community Opportunity, is reportedly drafting legislation on predatory lending that includes a federal preemption.

While some lenders are adapting systems to conform to a patchwork of state and local laws, a new coalition of subprime lenders has formed to back a federal preemption standard.

In announcing the New York thrift preemption, OTS Director James E. Gilleran said, "This enables and encourages federal thrifts to provide low-cost credit safely and soundly on a nationwide basis. By requiring federal thrifts to treat customers in New York differently, the New York law would impose increased costs and an undue regulatory burden. "