On Monday, in a case involving New York State’s investigation into predatory mortgage lending practices, the US Supreme Court issued a landmark ruling broadening the ability of states to enforce consumer protection laws against banks.

Major banks have long argued that only federal bank regulators can compel them to comply with rules meant to protect consumers from potentially unfair lending practices or pursue cases of potential discrimination against minorities.

The Supreme Court, in a 5-4 decision, disagreed, concluding that state attorneys general can go after national banks on such matters. The court found, however, that states cannot unilaterally require banks to turn over information or change their behavior, the way a regulator can. Rather, they must take the banks to court.

"States were precluded from going forward to enforce consumer-protection laws against banks," said John Cooney, a partner in the law firm Venable and a specialist in regulatory law. "Now they have the green light to move forward in consumer protection and a lot of other areas."

Pennsylvania was the first state to take advantage of the new ruling when Governor Ed Rendell (also on Monday) signed a bipartisan package of state laws designed to protect state residents from unfair mortgage lending practices. The laws had a mix of Democratic and Republican sponsors, and they both passed unanimously in the Democratically-controlled House and the Republican Senate:

The laws will ensure that homeowners get more information about their mortgage terms and protect mortgage company employees who report illegal activity.

Rendell said the laws will help consumers shopping for a mortgage or refinancing their homes.

The new laws are also an important step in preventing the foreclosure crisis from repeating itself in Pennsylvania. Lawmakers believe that consumers who have more accurate information will make wiser financial decisions when seeking a mortgage.

These are not the first state laws aimed at stemming the foreclosure crisis. Back in April, we highlighted a new Illinois law giving a 90-day grace period for homeowners facing foreclosure – time to find a new job, seek debt counseling, or find other ways to get their finances in order. Other states are pursuing similar legislation around the country.

Between this new state-level push to limit foreclosures and yesterday’s landmark Supreme Court ruling, states are poised to play a much bigger role in financial regulation than perhaps ever before.