This spring, Attorney General Lisa Madigan flew to the nation's capital to testify before the House Financial Services Committee, where she asked Congress to grant state attorneys general the authority to challenge national banks for violating local consumer protection laws. While she did successfully negotiate an $8.7 billion settlement with Countrywide Financial after they engaged in deceptive mortgage lending practices, she pointed out that a bank's ability to move its state business to federally chartered subsidiaries -- thus preempting state law -- prevented her office from fully protecting Illinois citizens. Now, thanks to a ruling by the U.S. Supreme Court yesterday, Madigan will have a lot more power to do just that. The Washington Post explains:

The decision gives state attorneys general the ability to pursue in court banks that are alleged to have violated state laws such as those protecting consumers. Banking groups and their national regulator, the Office of the Comptroller of the Currency, argued that that power is restricted to the federal regulator. [...]

[Justice Antonin] Scalia joining with the court's four liberal justices, argued that state authorities must have the power to pursue cases against companies operating within their borders so long as there is no federal law explicitly prohibiting it and they do so through the court system.

Why is this ruling important? The SCOTUS decision cements a state's right to enforce consumer protections within its own borders, a trend the banking and and mortgage lobbies have fought against for years. Combined with the Obama administration's executive memorandum requiring federal agency heads to prove there are "legitimate prerogatives" for preempting any existing state regulation, consumers can rest assured that no state statute will be ignored because lax regulators in Washington want to protect moneyed interests.

Practically, state officials are simply quicker than federal regulators at identifying problems close to home. That explains why Illinois has been pursuing predatory mortgage lending practices in court since 1998, when it prosecuted First Alliance for targeting the subprime market. And during the Bush years, federal regulators at the Office of Comptroller of Currency chose not to exercise their authority to oversee these massive consumer violations, going so far as to bar states from enforcing their own laws.

Madigan was thrilled with the ruling. Here is a statement from her office:

“We’re very pleased with the decision. Attorney General Madigan has taken the lead nationally in investigating banks for their role in the mortgage foreclosure crisis.  This ruling confirms our belief that states have always had the authority to enforce our laws and protect Illinois citizens when national banks engage in wrongdoing.”

The ruling could also free Madigan to ramp up her investigation of Wells Fargo.  As the Chicago Reporter has documented, the bank systematically singled out black residents for high-interest mortgages. Wells was one of the institutions former New York AG Elliot Spitzer was blocked from targeting  in 2005, prompting the original appeal.

Image used under a Creative Commons license by Flickr user wallyg.