Economists Ask Supreme Court to Uphold Federal Preemption in Banking Case

Economists Ask Supreme Court to Uphold Federal Preemption in Banking Case

State Consumer Protection Rules Often Backfire
November 02, 2006

Contact:  Christine Hall, 202.331.2258

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Washington, D.C., November 3, 2006—

A group of economists and regulatory experts on Friday asked the U.S. Supreme Court to uphold federal preemption of state rules aimed at federal bank subsidiaries.  An amicus brief filed on their behalf by the Competitive Enterprise Institute focused on the fact that state credit regulations aimed at protecting consumers often end up injuring them.  


On November 29, the Supreme Court will hear a lawsuit brought by the state of Michigan against Wachovia Bank.  At stake is how heavily states can regulate subsidiaries of banks chartered under federal law.  Lower courts have consistently deferred to federal regulatory agencies in such conflicts.


Supporters of the state’s position, led by the AARP, oppose federal preemption and argue that Michigan consumer protection laws are better.  CEI’s amicus brief argues that the laws supported by AARP and its allies actually harm consumers.  State credit regulations “can often backfire, hurting the very consumers that they are intended to protect by making credit more expensive and less available,” the CEI amicus brief explains.  State interest-rate ceilings, for example, “dry up the flow of credit to the low-income and high-risk borrowers … forcing borrowers to turn to loan sharks and disguised loans ….”


CEI’s brief was filed on behalf of G. Marcus Cole of Stanford Law School, Christopher DeMuth and Peter J. Wallison of the American Enterprise Institute, Richard Epstein of the University of Chicago, Robert E. Litan of the Brookings Institution, Michael E. Staten of George Washington University, and Todd Zywicki of George Mason University.  


Read the brief. 


CEI Policy Experts Available for Interviews

Hans Bader

Legal Counsel


Sam Kazman

General Counsel