In The Public Interest : Are Consumers Too Small To Save?

Will Congress Replace the CFPA With a Coalition of Unwilling Regulators?

Washington often seems like Superman's Bizarro World where "Us is opposite." If you don't believe me, start following House attempts to pass the Wall Street Reform and Consumer Protection Act. It's on the House floor right now and should be on C-Span 1 most of today (Dec. 10, 2009).

Why Bizarro? Simple. Despite the worst economic crisis since 1929, Congress is listening to Wall Street bank lobbyists instead of to the public. The public is clamoring for reforms to protect Main Street, but Congress is still considering amendments to instead protect Wall Street.

Last year, the Bush administration and Congress asked taxpayers for hundreds of billions of dollars in TARP cash to bail out the Wall Street banks even though their actions had caused the worst financial crisis since 1929. Washington said that "we have to save the banks; the banks are too big to fail."

Now, the two questions to ask are these:
• Are consumers too small to save?
• Will Congress replace the proposed Consumer Financial Protection Agency (CFPA) with a "coalition of the unwilling" regulators?

In Bizarro Washington, those questions will be considered on the House floor today, as Congress votes on the bank-backed Walt Minnick (D-ID) amendment (PDF of amendment) to strike the establishment of a tough new CFPA from the Wall Street reform package. Minnick, if approved, would replace the CFPA with a "coalition of the unwilling "- the existing regulators who led the system that failed.

Predatory mortgage lending practices were at the center of the growth of the housing bubble that helped precipitate the collapse. Federal regulators ignored these practices for years, just as they ignored the use of tricks and traps by credit card companies that used "change the rules at any time for any reason, including no reason" clauses to impose 36% APR interest rates on customers who'd never been late, as well the rise of unfair overdraft fee schemes (the $39 latte).

The solution, as proposed by the Obama administration, is the CFPA. If approved as part of the reform package, the CFPA will regulate all financial products, regardless of which bank, payday lender or other non-bank sells them. As introduced, it was also supposed to reinstate federal law as a floor, not ceiling, of consumer protection, again allowing states to pass stronger laws and again allowing state attorneys general to police the financial marketplace.

Yesterday, in a backroom deal, House leadership accepted without a vote a modified (somewhat less bad, but not good) version of the Representative Melissa Bean (D-IL) proposal to strike most of its provision reinstating strong state attorney general authority. Bean's amendment was backed by two conservative Democrat coalitions, the Blue Dogs and New Dems, "friends" of Wall Street, who claimed that unless state attorneys general were muzzled, they wouldn't support the underlying proposal to establish a Consumer Financial Protection Agency.

We'll see today if they will or won't. Minnick and the banks want to just get rid of the CFPA (pdf) and leave things up to the Federal Reserve Board and the Treasury's Office of the Comptroller of the Currency (OCC).

That's a bad idea.

The Fed didn't do its primary job: using monetary policy to protect the economy, when it ignored the rise of the housing bubble that then exploded. And the Fed didn't do its other job, protecting consumers, either, after Congress gave it enhanced authority to prevent predatory lending back in 1994.

Only after the foreclosure crisis peaked in 2006, did the Fed finally finish writing weak rules in 2008. Meanwhile, after years of issuing opinions preempting this or that state law or authority of state attorneys general, the OCC in 2004 issued a sweeping rule taking the state players completely off the board. It had time to preempt the states even though it had no time to enforce the federal laws, according to leading experts including professors Patricia McCoy and Art Wilmarth.

We can count on the Fed and the OCC to do what the banks want, not what consumers and taxpayers need, not what is in the public interest. They won't ever change. Anyone who believes that is living on Bizarro World. We need a CFPA to protect consumers. That's why Americans for Financial Reform, now comprised of over 200 of America's leading consumer, civil rights, senior, worker and investor protection groups, is fighting to save the CFPA. Will the House oppose Minnick or will it decide that consumers are too small to save?