Another Subprime Story

Here’s a story about the subprime mortgage crisis that has gotten very little attention: Sometime in 2002, attorneys general in a number of states started noticing dramatic increases in predatory lending activities. When these states tried to enact laws to rein in subprime mortgage lenders, the Federal government issued a ‘pre-emption’ rule that nullified all state-level predatory lending laws.

The practice of ‘pre-emption,’ which stems from the Constitution’s supremacy clause, has a rich and varied history. Some of the most famous uses of ‘pre-emption’ occurred during the Civil Rights struggle, when federal action was necessary to override state laws that upheld racial segregation and denied voting rights to African Americans. Pre-emption also has been used to establish national minimum standards for workplace safety and for environmental protection.

Just how and when the Federal government should overrule state law is a matter of intense debate, especially given that it involves a question of constitutional intent. One way of understanding the supremacy clause is that it was meant to give the Federal government a way of establishing a floor, or to set minimum standards that should apply across the nation, with regard to human rights, public health and safety, and social welfare. It could be understood as a tool for ensuring that we each get equal treatment under the law, no matter what state we live in.

Until recently, we could count on conservatives to object to ‘pre-emption’ on the basis of states’ rights. According to the ‘states’ rights’ argument, federal intervention is almost always bad and abusive, even if it protects a group of citizens (African Americans, workers, the poor) from laws and practices that are harmful to them.

Over the past 7 years, we have seen a conservative Administration use pre-emption not to raise the floor for all citizens, but to protect the interests of big business. Just as conservatives raised questions about original intent during the civil rights era, I question whether the founders intended for the Federal government to override state law for the sake of corporate interests. But I’m not sure this Administration’s conservatives would welcome such a question. According to New York Times columnist Adam Cohen, the Bush Administration has used pre-emption to over-rule state environmental laws that go further than federal laws. As part of the President’s 2003 Medicare law, federal pre-emption has prevented states from regulating abuses in private Medicare insurance plans. And now, we know that pre-emption has played a role in the subprime mortgage crisis. All of this suggests that, today, market fundamentalism trumps all other conservative values. Wouldn’t it be nice to have a genuine debate with conservatives about states' rights to rein in corporate abuses?

--Sandra Hinson