With healthcare reform passed, the next big legislative battle will be over financial regulation reform. Unlike the Affordable Care Act, which the nation followed from opening to closing credits, financial reform has been running in a largely empty theater. Many reporters and citizens find themselves walking into the show two-thirds of the way through, bewildered by its complexity. But the movie’s not over yet, and the ending is undetermined. So it’s important for progressives to understand the essential elements of financial reform.
Here’s where we are. In December the House passed a comprehensive financial reform bill, crafted mainly by Barney Frank and the Treasury. The bill gets, at best, a B-. There are some strong provisions–an independent consumer protection agency and caps on leverage–and some gaping loopholes, such as exceptions for derivatives that render the new requirements largely moot. Even after Wall Street lobbyists had nibbled and chomped through it in committee, the Financial Services Roundtable and Chamber of Commerce still opposed it, which counts as no small point in its favor. The bill passed with–surprise!–zero Republican votes.
In late March, Chris Dodd steered his own version of financial regulation reform out of the Senate Banking Committee. Several months of negotiations with Republicans made the bill weaker than Frank’s bill but didn’t yield any Republican votes. (Sound familiar?) The bill will now go to the floor, where it can be amended. Since almost none of the bill can qualify for the reconciliation process, passage will almost certainly require at least one Republican defection. In other words, a weakened version of the already watered-down House bill will need to be diluted even further to pass. Here’s what to watch for as Republicans and self-described centrists start bringing out the fire hoses.
The Consumer Financial Protection Agency: This independent agency to regulate consumer credit practices is the brainchild of TARP watchdog and Harvard law professor Elizabeth Warren. In her plan, the agency would root out predatory and risky practices, like exploding mortgages with tempting teaser rates, before they spread through the system. A reasonably strong version of CFPA passed in the House (despite the banks’ fierce effort to kill it and major loopholes carved out for lenders like auto dealers and pawnbrokers), and a weaker version of it exists in the Dodd bill, where it’s been converted into the Consumer Financial Protection Bureau and housed in the Federal Reserve. Even in this weakened form, the CFPA has attracted sustained opposition from industry interests. Indeed, the Chamber of Commerce is running TV ads that darkly (and implausibly) argue that a CFPA will somehow target small businesses. Heather McGhee, who’s been following the CFPA closely for Demos, points out that even in the Dodd version the bureau retains broad "rule-writing authority," the crucial power to say which practices are and are not kosher. If that ever goes, the raison d’être for the CFPA goes with it.