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Court upholds federal regulation of banks’ mortgage lending

The Supreme Court ruled on Tuesday that federal law, not state law, controls the regulation of mortgage lending activity by national banks, even when that is carried on by an operating subsidiary of the bank. The vote was 5-3.

Announcing the ruling in Watters v. Wachovia Bank (05-1342), Justice Ruth Bader Ginsburg said: “Where a national bank engages in real estate lending through an operating subsidiary, the subsidiary is subject only to the same terms and conditions as those that would govern the bank itself” — that is, federal regulation under the National Bank Act. “”Though state law…governs matters pertaining to an operating subsidiary’s incorporation, state regulators cannot interfere with the ‘business of banking’ by subjecting national banks or their [federal]-licensed subsidiaries to rival oversight regimes.”

The Court also rejected Michigan officials’ argument that federal regulation of such subsidiaries’ activity violated the Tenth Amendment. “Because regulation of national bank operations is Congress’ prerogative under the Commerce and Necessary and Proper Clauses, the Tenth Amendment holds no sway in this case,” Ginsburg said.

Ginsburg’s opinion was supported by Justices Samuel A. Alito, Jr., Stephen G. Breyer, Anthony M. Kennedy and David H. Souter. Justice John Paul Stevens dissented, joined by Chief Justice John G. Roberts, Jr., and Justice Antonin Scalia. Justice Clarence Thomas did not take part in the ruling.

In a second ruling on federal administrative law, the Court decided that the Communications Act allows a private company to sue a long distance telephone company for failing to pay for coin-less calls from pay phones. Justice Breyer wrote the 7-2 decision in Global Crossing v. Metrophones (05-705). This case was the last undecided case from the Court’s October sitting.

The ruling upheld a decision by the Ninth Circuit in favor of Metrophones Telecommunications, Inc., a pay-phone provider based in Washington State. It sued its long-distance carrier, Global Crossing Telecommunciations, and other long distance companies under the Telecommunications Act of 1996. The Ninth Circuit ruled that the Act allows a private entity to sue for violations of the Federal Communications Commission’s pay phone compensation rules. Justices Scalia and Thomas dissented.

In the third ruling of the day, the Court in Zuni School District v. Department of Education (05-1508) upheld the Secretary of Education’s formula for determining when a federally connected public school district can have its federal aid reduced by an offset in state financial aid. The Secretary’s formula affects public school districts with high concentrations of children of families on military bases or of Indian children. Two New Mexico districts challenged the government’s formula, seeking to recover some $50 million in federal subsidies.

Justice Breyer wrote the Court’s opinion; the vote was 5-4. Justice Scalia dissented, in an opinion joined in full by the Chief Justice and Thomas and in part by Souter. With Breyer in the majority were Alito, Ginsburg, Kennedy and Stevens; they supported the main opinion, but Stevens also filed a concurrence as did Kennedy, joined by Alito.

Other decisions on the merits are due Wednesday. There is no advance word, of course, on what will be decided. The earliest-argued cases still undecided — from the November sitting — are James v. U.S. (05-9264), on whether a state conviction for attempted burglary can be treated as a violent felon under federal armed criminal sentencing law, and the partial-birth abortion cases (Gonzales v. Carhart, 05-380, and Gonzales v. Planned Parenthood, 05-1382). There is no certainty that either will be decided this week.,