The Obama administration, with its too-close-for-comfort ties to Wall Street and its Federal Reserve-friendly appointees, has not exactly been in the forefront of fighting for consumers in the current wrangling over financial services reform.
More often than not, the White House has been on the margins or, in key fights over restricting “too-big-to-fail” banks and establishing a truly muscular agency to protect consumers of financial services, on the wrong side.
But even the overly-cautious Obama team recognizes the dramatic danger of a proposal by Delaware Senator Tom Carper, which would gut the ability of states to set higher standards for consumer protection.
Carper’s an old-school corporate Democrat. He serves the banking and business interests that have established headquarters in his state because of its lax approach to financial regulation. And he wants to make sure that other states cannot go after those firms when they rip off working families and small businesses.
The Carper amendment – which is backed by a number of Republicans along with corporate Democrats such as Indiana’s Evan Bayh, who has carried an immense amount of Wall Street water during this regulatory fight, and South Dakota’s Tim Johnson, whose state is a major credit-card processing center – would effectively prevent state regulators from enforcing consumer protections on national banks and their subsidiaries. It would, as well, undermine language that has been included in the financial services reform legislation to protect the regulatory authority of the states.
“Carper’s amendment is designed like Darth Vader’s Deathstar, to destroy consumer protection," says the U.S. Public Interest Research Group’s Ed Mierzwinski.
That’s too much for the White House. On Thursday, in a conference call with state officials, the deputy director of the National Economic Council, Diana Farrell, specifically declared that the administration is working to block the Carper amendment. “We intend to fight those and oppose (the move by Carper),” Farrell told state attorneys general. “We just don’t think those are welcome additions to the bill. We have a very strong hope that the senators will make the right choice.”
This is a very important development, as the fight over the ability of the states to set higher regulatory standards goes to the heart of the question of whether consumers will be protected.
Historically, the efforts of aggressively pro-consumer state officials have assured that banks and credit-card companies are held to account. Unfortunately, during the Bush-Cheney years, the federal government went out of its way to override state laws that were particularly protective of consumers. Consumer-friendly attorneys general, like New York’s Eliot Spitzer and California’s Jerry Brown, often found themselves at odds with the feds.
While the new Consumer Financial Protection Agency, which the administration and Senate Banking Committee chair Chris Dodd, D-Connecticut, back, could provide some additional protection, it will not be sufficient. State regulation is needed to make real the promise of reform.