Mark Winston Griffith

Watters v. Wachovia: High Court Gives Banks Permission to Act Badly

Although the Supreme Court has recently gained more attention through issues like so called partial-birth abortion, a relatively lesser know decision handed down last week will arguably have a more profound effect on the lives of Americans. In Watters v. Wachovia Bank the Supreme Court held that Michigan's bank regulator had no authority over a mortgage subsidiary of Wachovia, a national bank - even though the mortgage subsidiary itself was state chartered.

If you're stifling a yawn as you read this, I'd advise you to sit up and take notice. As arcane as this all might sound, Watters vs. Wachovia will make it even more difficult for state banking consumer protections, which are considerably tougher than federal measures, to have any relevance. As it is, a federal charter provides cover to banking institutions to virtually have their way with customers. And when you consider how scandalously permissive and ineffective federal regulators have been in the face of the sub prime hose down of mortgage seekers, there is now little to stop financial institutions from using federal charters as a license to ill.

Two recent pieces in the New York Times, one published on the 29th of April, the other, an op-ed by Manhattan DA Robert Morgenthau which appeared on the 30th, explain some of the consequences of Watters vs. Wachovia.

The Morgenthau op-ed recommends congressional action in the form of amending the National Bank Act. This is an obvious, but nonetheless necessary step. Considering the power of the bank lobby, it's also a heavy lift.

In the end, the courts won't fix this problem. Regulators, congress, and the person sitting in that big White House, are the only ones who can toss some cold water on banks gone wild.

Mark Winston Griffith: Author Bio | Other Posts
Posted at 9:52 PM, May 03, 2007 in Banking
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