May 15, 2007 – Last month we ran an article on a recent Supreme Court ruling that national bank subsidiaries are exempt from state regulatory authorities. The ruling has already had a number of affects that are negative to consumers. But there is some evidence that Congress may be poised to reign in certain banking activities, which gives us some hope that things could get better for consumers.

If you have never heard of the Community Choice in Real Estate Act (CCREA), you are not alone. The proposed act has received virtually no press. The bill, which was sponsored by Hillary Clinton (D-NY), has been proposed several times since 2003. Earlier this month it was proposed again.

The bill is in response to a proposed rule by the Office of Comptroller of the Currency (OCC) to allow big banks to get into the real estate business. This would mean that banks would be allowed to own realty companies and manage property. They would also be able to serve as a loan broker.

If all of this sounds boring, it gets a lot more interesting when you figure out that allowing this activity could give banks a lot more control over your ability to get a loan, or shop for property (as if they don’t already have enough control). It could also give them a significant advantage in dealing with property that has been foreclosed upon. By controlling the inventory of foreclosed properties, they could actually be in a position to allow them to manipulate prices in certain markets.

This is very bad news for consumers. Because of the recent Supreme Court ruling, if banks are allowed to get into the real estate business, the states won’t be able to regulate them. This means that many of the state laws that require real estate companies to provide full disclosure on properties being sold, or licensing for real estate agents and brokers, would simply be unenforceable. It also means that any consumer who believes that he or she has been defrauded in a transaction wouldn’t be able to turn to their state authorities for help.

But if CCREA becomes law, it will prevent the OCC from implementing its proposed new rule. Essentially, CCREA separates "banking" from "commerce". It would allow the states to regulate any real estate commerce related activities of all banks. This includes activities like real estate management and brokering of loans.

Since the bill was first introduced in 2003, it has managed to get a lot of sponsors but never managed to move all the way through the legislative process. But the bill may stand a better chance this year because of the Supreme Court’s ruling last month. In that case the Court ruled that Wachovia Mortgage, a wholly owned subsidiary of Wachovia Bank, could not be regulated by the State of Wisconsin because only the federal government is allowed to regulate National Banks.

That ruling has already had other consequences. For instance, California law says that when Californian’s purchase debit cards (like American Express Gift Cards), those cards can never expire and the companies that sell them can’t reduce the balance of cash available on the cards by charging fees. But with the Wachovia ruling, banks that sell debit cards in California are now exempt from this law.

At ACCESS we support CCREA and urge Congress to pass it soon. If they don’t, consumers who are shopping for a new home, or for a new home mortgage, are likely to find that their choice of who to work with will be significantly limited.

by Jim Malmberg

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