The New York Times’ David Streitfield and John Collins Rodolf report that state attorneys general might start suing mega-banks:

Frustrated by the banks’ inability or unwillingness to stop an avalanche of foreclosures, the states are considering lawsuits over the creation and marketing of millions of bad loans as well as the dismal pace of mortgage modifications.

Such cases would have been impossible until recently, because federal regulators had exclusive oversight of national banks. But a 5-to-4 Supreme Court decision in June allowed the states to exercise their own supervision, giving them significant leverage.

This Supreme Court case that gives state AGs some oversight over national banks is pretty amazing: In 2005, then New York state AG Eliot Spitzer had demanded that the Clearing House Association, a group of national banks, provide a record of bank-lending practices. When the Clearing Houe Association balked and Spitzer sued, the group of banks found a powerful ally: the Office of the Comptroller of the Currency, the federal agency whose job it is to investigate bank lending! Not only was the Office of the Comptroller of the Currency asleep as banks made predatory mortgage loans they actually worked to prevent state AG’s from investigating lending practices. It makes about as much sense as if I never took out the trash and then sued my roommate to prevent him from taking out the trash.

But what does the Supreme Court decision really remedy — Can state AGs still sue banks for predatory lending practices made a few years ago? The current issue is that banks aren’t modifying those loans — but there is no law passed by Congress that compels bank to participate in, for example, TARP’s homeownership assistance program.

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