VIEWPOINT: Time to Fix Preemption, Not Abandon It

By Roster, Michael | American Banker, June 12, 2009 | Go to article overview

VIEWPOINT: Time to Fix Preemption, Not Abandon It


Roster, Michael, American Banker


Byline: Michael Roster

With statements from Congress and the administration and a Supreme Court case pending on preemption, it is a good time for the banking industry, consumer groups and policymakers alike to have a civil conversation.

I think we will quickly come to a consensus that preemption is both necessary and in need of repair.

It would be ironic if, just as Europe and other parts of the world eliminate national barriers to commerce, we in the United States re-create state barriers. And it is folly to think that we can have a patchwork where not only the states but also every city and county can adopt its own rules, on top of whatever the federal government enacts. The only people who will benefit are the lawyers, who on both sides will derive substantial incomes from endless litigation.

Take credit cards. If a cardholder moves from New York to Florida, are the old credit card balances subject to New York's protections and the new balances to Florida's? How do you allocate those balances if a portion is rolled over from one month to the next? What if there are joint account holders with different states of residence?

These are examples of the hundreds if not thousands of issues that will require rules ad nauseam. And for what purpose?

Similar issues would arise if we have a patchwork of rules governing mortgages and other consumer loans. And at least some readers will remember when we once spent huge amounts of time to determine the "choice of law" in multimillion-dollar commercial transactions, flew boards of directors to a designated state, required payments all to come to that state etc. Do we really want to go back to that Neanderthal era?

But preemption as it currently exists has serious shortcomings. The doctrine was largely developed in the 1970s in connection with the fixed-rate mortgage crisis of that period. About $1 trillion of the nation's $3 trillion of banking assets were insolvent, since institutions were holding mortgages yielding something like 4% but suddenly were paying 20% or more for funds. The preemption doctrine was developed as a way to address the havoc that existed in the nation's fixed-rate mortgage system, leading to a U.S. Supreme Court decision known as de la Cuesta that upheld the sweeping preemptive authority of the relevant federal regulator, the Federal Home Loan Bank Board, now known as the Office of Thrift Supervision.

The thrift regulator was created during the early years of the Depression. Because it was not clear then what powers would be needed, the legislation used few words but was sweeping in scope. It directed the FHLBB to adopt such rules and regulations as might be needed, "giving primary consideration to the best practices of local mutual thrift and home financing institutions" throughout the United States. In other words, the FHLBB could do pretty much anything it wanted in regulating federal thrifts but was to look at what was working at the state level and adopt federal rules based on these best practices.

In recent years we have been trying to graft preemption atop a deregulated system, and this will not work. It is like grafting a 100-foot tree atop a thinly rooted shrub. With the slightest wind, it will topple.

My mentor, Bill McKenna, largely invented the preemption doctrine, and before Bill would argue preemption in court, he insisted that there be a federal rule regarding whatever was at issue (due-on-sale clauses, late charges, prepayment fees etc.).

Bill understood that preemption was both a legal and a political matter. He did not think preemption would survive if a judge were to say, "I agree that the supremacy clause [in the Constitution] makes national law supreme.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

VIEWPOINT: Time to Fix Preemption, Not Abandon It
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.