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.
That’s why the banks and their allies are lobbying so aggressively in favor of the Carper amendment.
That’s also why consumer groups and their allies have shifted their focus to the fight with Carper.
With its move Thursday, the White House lined up with U.S. PIRG and other groups that have been aggressively campaigning against the Carper amendment.
In a letter to senators, the Americans for Financial Reform coalition identified Carper’s proposal as what it is: “a stealth attempt to give banks immunity from consumer protection.”
In the letter, coalition leaders lay out the case for blocking the Carper amendment, under the headline: “Don’t Take States and AGs Off The Predatory Lending Beat”
The AFR letter reads:
We write on behalf of Americans for Financial Reform, an unprecedented coalition of over 250 national, state and local groups who have come together to reform the financial industry. Members of our coalition include consumer, civil rights, investor, retiree, community, labor, religious and business groups as well as Nobel Prize-winning economists. We support a strong Consumer Financial Protection Bureau and oppose weakening amendments to the Restoring American Financial Stability Act, S. 3217.
The Carper Amendment is a stealth attempt to give banks immunity from consumer protection, taken directly from the bank lobbyists’ playbook. If you care more about protecting consumers from bank abuses than you care about protecting banks who are violating the law–you should oppose this amendment. The bill’s enforcement and preemption provisions are already a compromise and must not be weakened further.
1. Attorney General Enforcement of CFPB Rules:
The amendment would take our state cops off the predatory lending beat. The CFPB’s authority has already been cut back, and the Carper amendment would leave enforcement for 98% of banks solely in the hands of the bank regulators who failed us in the past.
* Anyone who violates the law should be accountable. Do not give banks that violate specific CFPB rules a special pass against vigilant enforcement.
* Under another provision of the bill, the CFPB will have no enforcement authority against 98% of banks, making it critical that AGs be able to protect their states’ residents.
* The CFPB cannot be everywhere, protecting consumers in all 50 states, and individuals won’t have a right to enforce the CFPB rules themselves. AGs need to be able to protect residents in their states.
* Many existing federal laws permit enforcement by state AGs, with no ill effects.
* Before bringing an enforcement action, the bill already requires AGs to consult with the CFPB and bank regulators, and the CFPB may intervene or clarify its rules, ensuring consistency in enforcement standards.
* More law enforcement helps everyone, including honest competitors who follow the rules, have nothing to fear, and might lose business to others who break the rules.
2. Immunity from State Law:
The amendment makes it easier for national banks to ignore state laws that address new bank abuses not yet covered by federal protection – the state laws we need the most. Preemption prevents states from stopping those abuses before they spread nationally.
* The Senate compromise provision in the bill already gives the OCC, an agency with a history of hostility to consumer protection, far too much power to wipe out state consumer protection laws. The provision should not be weakened further.
* States are first responders who act first and stop local abuses from spreading to become a national problem. Their laws are most important when there is a gap in federal law.
* States that adopted tough anti-predatory lending laws before the OCC preempted those laws had lower foreclosure rates than states without those laws.
* National banks made riskier loans after the OCC issued a broad preemption rule. In 2006, from 32% to 50% of toxic loans, depending on the type, were made by banks and subsidiaries that states could not touch, and that share was growing.
* Preemption favors large national banks and weakens our dual banking system.
Banks—which have opposed stronger consumer protections all along—have identified state attorney general enforcement and preemption of state laws as their key weakening amendments. The banks want to be able to ignore both state and federal law with impunity. A vote for Carper #3949 is a vote against consumer protection.
In a time of global economic crisis we clearly need more enforcers of consumer protection laws, not fewer.
Americans for Financial Reform