“That’s how we settle a lot of cases nowadays,” Brennan told me. “Not all but well over half.”
A man named John D. Hawke, Jr., played only a peripheral role in the legislative fight over predatory lending in Georgia. As head of the U.S. Office of the Comptroller of the Currency (OCC), Hawke regulated the country’s national banks. He blanched every time a state encroached on his turf, and even before the Barnes-Fort bill took effect, he had already granted a blanket exemption to the banks under his supervision. That didn’t help giant mortgage lenders like Countrywide or Ameriquest but it provided relief to big banks like Wells Fargo and Washington Mutual. But it was another judgment Hawke made in 2003, one month after Sonny Perdue broke the hearts of Fort, Brennan, and others in Georgia, that stands out as the other great what-if of the early 2000s. Bill Clinton had nominated Hawke to a five-year term as OCC chairman that began in 1999 and from the start he seemed intent on standing in the way of those trying to crack down on predatory lending.
It was more than just legislators in states like North Carolina, Georgia, and New York who were eager to do something about the more egregious forms of subprime mortgage lending. A number of state attorneys general were also intent on taking action, so much so that within their national association they had formed a predatory lending committee. Iowa Attorney General Tom Miller, whose investigation of Ameriquest led to that company paying a $325 million fine, served as co-chair of the committee. So too did North Carolina’s Roy Cooper, who had been displeased with Hawke ever since the latter exempted (as he would do in Georgia) national banks from the state law Cooper had championed while he was president of the North Carolina Senate. In April 2003, a small contingent of attorneys general converged on Washington hoping they could convince Hawke to work with them instead of against them.
Hawke agreed to a meeting but then asked himself why he had even bothered. He was annoyed with the lot of them even before they showed up at his offices. The day before they were scheduled to arrive, Eliot Spitzer, then the New York attorney general, had held a press conference blasting Hawke as a pinheaded bureaucrat for standing in the way of his efforts to crack down on unfair lending practices, especially in black and Latino neighborhoods. Spitzer wasn’t at the meeting with Hawke but his presence was felt just the same. “Are we here for a press event,” Hawke began when he took his seat, “or do you want to talk issues?” The attorneys general were no happier with their publicity-hungry colleague from New York but there was also nothing they could do. “We couldn’t control Spitzer but that didn’t change the fundamental issue that we were there to talk about,” Cooper said.
Their meeting lasted only an hour. It was decorous despite its contentious start but hardly satisfying for either side. The attorneys general asked for more latitude in cracking down on predatory lending; Hawke held forth on the doctrine of preemption and why it was critical that the federal government not relinquish any regulatory power. We’re not trying to intrude on the business of ensuring the safety and soundness of the nation’s banks, the attorneys general countered, but we have the right to protect our citizenry from the oppressive loans that some lenders under your charge are making. States have also always had the right to regulate real estate transactions within their borders, Cooper argued when it was his turn to speak, and they have the power to enforce consumer rights laws even if that abuse is at the hands of a nationally chartered bank (or a bank’s subprime subsidiary, for that matter). There were more practical considerations as well: The states were closer to the problem and could react more quickly than the federal government. Hawke, however, would not budge.
“He took fifty sheriffs off the job when the lending industry was becoming the Wild West,” Cooper, who was still angry with Hawke when I visited him in North Carolina, told me at the end of 2008. “What was going on was unrestrained and uncontrolled. You had these no-doc [no documentation] loans. You had lenders that weren’t even looking at the borrower’s ability to pay because they knew they would just be selling these loans on the secondary market.” If the federal government had chosen to remain neutral, Cooper said, “I believe the fight against these lenders would have spread like wildfire across the country because of just the basic unfairness.” Instead, Hawke and the OCC threatened lawsuits at every turn.
“I blame him for the meltdown,” Bill Brennan said of Hawke. “He knew exactly what was going on and didn’t do a thing about it.”
Hawke was fed up with that kind of statement by the time I reached him at the end of 2008. “Everyone’s looking around for a scapegoat,” he said. “So people point a finger at me.” It’s not as if he did nothing, he said. He asked the attorneys general to give his staff any evidence they had of reckless lending “but they just completely dropped the ball on that.” He suspected that’s because their main interest was in generating headlines. He pointed out that shortly after meeting with Cooper and his colleagues, he sent out rules clarifying the OCC’s position: Loans should be based not solely on the worth of a borrower’s collateral but also on his or her ability to pay. To him, if people are looking for someone to blame, look at the investment banks and their “unquenchable thirst” for more subprime loans they could package and sell.
Hawke is a heavyset man with thinning gray hair and dressed in suspenders and a bright blue-and-white striped dress shirt. After his term expired in 2004, he returned to Arnold & Porter, the Washington, D.C., powerhouse law firm where he had worked prior to his appointment. There he represents some of the same banks he had supervised as the chairman of the OCC, but to his mind there is no conflict of interest because his fight with the states had been over jurisdiction and never the behavior of the banks under his domain. “One of the benefits of being a national bank is you can operate under a single set of rules,” Hawke said. As he had done in his meeting with the attorneys general, Hawke gave me a short lecture about the Constitution and the primacy of delegated federal authority over states’ rights. “Preemption is not something for us to give up on because it might be convenient,” he said.
If ever he doubted himself, Hawke had the courts to provide him solace. The OCC filed suit against Spitzer after he opened an investigation of possible discrimination by banks under his charge. The federal district court ruled in favor of Hawke’s agency and the U.S. Court of Appeals upheld the lower court’s decision. “He challenged us,” Hawke said of Spitzer, “and we beat ’im every time.” Six months after my visit, though, Hawke was no doubt feeling less smug. The U.S. Supreme Court concluded that the OCC had been wrong and had had no right to block a state trying to enforce its own law. An unusual coalition had formed behind this ruling, with Antonin Scalia writing for the majority in an opinion that also had the consent of the Court’s four more liberal justices.
The alarms, meanwhile, continued to ring, even as most people in power chose to ignore them.
Public Enemy Number One
The first thing Steven Schlein wants you to know about the ongoing, epic struggle between his clients—the payday lenders—and their critics is that it’s not a fair fight. Payday’s foes, and especially Martin Eakes, have too much money and too much power. “They’ve got more lobbyists than we do,” he complained when we sat down together in mid-2008. “They have more money. We’re completely outgunned!” I raised a skeptical eyebrow and Schlein, payday’s main spokesman, slowly shook his head in disappointment. He has a strained, Brooklyn-tinged voice that he raises an octave. He sounded as if he were pleading rather than making a rhetorical point. “Go take a look at the $25 million monument Eakes bought for himself,” he said. He pointed his chin toward the window and the multistory building the Center for Responsible Lending (CRL) bought a few years earlier to serve as its Washington, D.C., office. “Go there right now and then tell me they’re just this scrappy, underfunded public interest group up against this big, bad industry.”
We’re sitting two blocks from the CRL building in the offices of Dezenhall Resources. That’s how bad it had gotten for Allan Jones, Billy Webster, the Davis brothers, and the others. In 2004, they started paying for the high- priced services of a crisis management firm that specializes in the representation of unpopular industries such as the chemical manufacturers, pharmaceutical companies, and Big Oil. The firm’s founder and chief executive, Eric Dezenhall, laid out his approach to helping beleaguered industries in his 1999 book,
“They have people in Washington,” Schlein says of Eakes and the Center for Responsible Lending. “They have
