Cordray warns against preemption in financial regulations

Chris Rizo Apr. 27, 2010, 5:36pm

Richard Cordray (D)

WASHINGTON (Legal Newsline)- Congress should be careful not to restrict powers of state attorneys general as they hammer out a possible financial regulation bill, Ohio Attorney General Richard Cordray told two leading Senate lawmakers.

In a letter released Tuesday, the Democratic attorney general pointed to his case filed last November against Wall Street's three major credit-rating agencies as an example of why states should be able to pursue cases against alleged Wall Street malfeasance.

"I urge you to oppose any attempt to preempt state enforcement of consumer protection laws against any sector of the financial industry that engages in abusive or deceitful conduct," said Cordray, who has filed eight major lawsuits against major Wall Street firms, including AIG, Bank of America, Fannie Mae, Freddie Mac, Marsh and Merrill Lynch.

In his letter to Senate Finance Committee Chairman Chris Dodd, D-Conn., and Senate Agriculture, Nutrition and Forestry Committee Chairwoman Blanche Lincoln, D-Ark., Cordray said he supports Wall Street reforms that include "independent authority" to protect consumers from predatory and deceptive practices with mortgages, credit cards and other loans.

"All are bound to comply with the law, and if they violate the law and harm others as a result, then they must accept the consequences. Clearly, our laws need to be strengthened to protect our economy and the citizens who make it work," Cordray said.

The release of Cordray's letter dated April 21 came the same day Senate Republicans blocked Democrats' efforts to gain more control over the nation's financial services industry. The Senate voted 57-41, three short of the 60 needed for Democrats to advance their measure.

In a statement accompanying his letter, Cordray said the federal government has a poor record of regulating the financial services industry, while state enforcement has been steadfast.

"The only cops on the beat in the financial area over the last decade were state attorneys general," Cordray said.

The attorney general's November lawsuit filed in U.S. District Court for the Southern District of Ohio alleges that bond-rating agencies Standard & Poor's, Moody's, and Fitch violated state securities law by misrepresenting the value of mortgage-backed securities in exchange for lucrative fees.

He claims that the companies' inflated ratings cost Ohio's public pension funds more than $457 million in losses.

"The congressional hearings have documented that 91 percent of the AAA subprime residential mortgage-backed securities issued in 2007 and 93 percent of those issued in 2006 have now been downgraded to junk status," Cordray said. "These facts are very damaging. They show that ratings were for sale and the representation of safety and value was meaningless. Millions of investors were left holding the bag."

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