States Are Pondering Fraud Suits Against Banks

Newly empowered by the Supreme Court, the attorneys general of several states hit hard by the housing collapse are exploring consumer fraud suits against major mortgage lenders.

Frustrated by the banks’ inability or unwillingness to stop an avalanche of foreclosures, the states are considering lawsuits over the creation and marketing of millions of bad loans as well as the dismal pace of mortgage modifications.

Such cases would have been impossible until recently, because federal regulators had exclusive oversight of national banks. But a 5-to-4 Supreme Court decision in June allowed the states to exercise their own supervision, giving them significant leverage.

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Already, the states’ victory in Cuomo v. Clearing House is beginning to affect the legal landscape. “The handcuffs are off,” said Ann Graham, a professor of banking law at Texas Tech University. “The states can pursue justice now.”

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