"In the Bush years, federal regulators not only failed to protect borrowers, they aggressively prevented the states from doing it. New York's attorney general sued, challenging the regulators' interference. This week, the Supreme Court ruled that federal regulators cannot prevent the states from enforcing consumer protection and fair lending laws against national banks.

As the current mortgage crisis was building, banks engaged in a wide array of bad practices. They lent to borrowers who could not afford to pay off the loans. They misrepresented loan terms, and they employed deceptive "teaser" rates to mislead their customers.

State attorneys general opened investigations and filed lawsuits. In 2005, then-Attorney General Eliot Spitzer of New York asked several national banks about lending practices to determine whether blacks and Hispanics had been charged higher interest rates than whites — and whether the banks had violated fair lending laws.

The Office of the Comptroller of the Currency, part of the Treasury Department, sued to block Mr. Spitzer. It claimed that a regulation it issued under the National Bank Act barred the states from enforcing state fair-lending laws. Two lower courts agreed.

The Supreme Court sided with the states by a vote of 5 to 4. In an opinion by Antonin Scalia — one of the most conservative justices, who voted with the court's four liberals — the court ruled that the comptroller had exceeded its authority under the National Bank Act.

The bank act, which dates to 1864, prohibits state officials from having "visitorial" powers over national banks. "Visitorial" powers, Justice Scalia explained, have to do with directly overseeing corporate affairs. Even though the states cannot supervise banks, he said, they do have the right to enforce their own laws.

The ruling sends a clear message that state officials have the power to rein in banks that behave badly. It was especially timely, since the banking and mortgage industries are trying to kill a proposal by the Obama administration to create a new agency to regulate consumer finance — a job now scattered around the government.

Congress should support that proposal and keep in mind the court ruling by making it clear that any rules the new agency sets are a minimum, and that states may impose more stringent standards." NYT Editorial