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Retiring Sen. Chris Dodd is expected to roll out a revised version of his financial regulatory reform bill this week and shove it through his Banking Committee on a party-line vote soon thereafter. Dodd, it seems, has run out of patience with the no-win game of bipartisanship. And in reaction, the committee’s GOP members sent him a letter Friday warning against “haste.” It’s been more than two years since Wall Street collapsed under the weight of its own predation, and still we’re moving too fast for the party of no.
The Dodd-GOP tete-a-tete broke down over the proposed Consumer Financial Protection Agency, which would broadly look out for consumers rather than watch over banks' balance books. It's the piece of regulatory reform that ought to be the most simple, given the reckless lending that spawned the mess we’re in. But lenders and their congressional backers have fought the idea tooth and nail. And much like health insurance reform, it has dwindled significantly since President Obama first proposed it last summer.
In the House, which passed its own bill in December, industry lobbyists co-opted enough conservative Democrats to win wide carve outs from the agency’s purview. The Senate’s now-dead bipartisan “compromise” would have repeated the error. Payday lenders and tax preparers, car dealers and pawn brokers–none of these would’ve been meaningfully regulated under the bill. The agency would have been able to write broad rules, but enforce them for banks alone. Dodd has rejected this idea, at least in part.
Struggling neighborhoods all over America are teeming with financial predators operating under the guise of short-term creditors. It’s a strange world in which a triple-digit interest rate isn’t usury, but that’s the reality payday lenders have created in some states. They’ve built a $42 billion-a-year industry (and one banks are hoping to get in on). Car dealers, meanwhile, originate the vast majority of the hundreds of billions of dollars in auto loans Americans hold. Whatever consumer protection agency Washington creates will be meaningless if it doesn’t police these types of products.
Dodd does appear eager to empower a financial cop with broader power than the House bill creates. But he's also got to resist pressure to fold the new watchdog into the Federal Reserve. In another Friday letter, 19 current and former members of the Fed’s Consumer Advisory Council explained to Dodd the folly of lumping together consumer protection with banking oversight:
We think it would be imprudent to give the Federal Reserve or any other existing agency primary consumer protection responsibilities. No agency, including the Federal Reserve, has a strong record in this regard. In 1994 Congress gave the Federal Reserve the power to outlaw unfair and deceptive practices in the mortgage market. The Federal Reserve waited until 2008 to issue their rule, long after the problem had become a crisis and after the market had collapsed. During that time, we and other consumer protection experts issued reams of comment and testimony calling on them to exercise their authority to protect consumers.
It’s nice to talk about the politics of the possible–and it will certainly take Republican support (not to mention that of conservative Democrats) to pass meaningful consumer protections out of the Senate. But reform in name alone will be useless to both consumers and politicians. Dodd and the White House should fight for something real, now. As Katrina vanden Heuvel points out, polls show Americans clearly support tough new regulations. If Republicans stand in the way, make them own it in November and then try again next year.
UPDATE: Here's what Dodd told the Wall Street Journal Sunday about his bill:
"On the consumer area, I feel very strongly about it…” He said he’s told Republicans “We’re willing to work with you but you’ve got to come to the table with votes too.” His proposal for a new consumer protection division would have the “authority and independence, and I emphasize that second word to you, to address the abuses and fraud that went on that caused so many” problems.
Emphasis was mine.