The battle in the Senate over a proposed consumer financial protection agency is the final show-down between banks and American families, bailout watchdog Elizabeth Warren wrote to supporters Monday night.
The outcome "will show whether we are going to let the industry continue to write the rules -- to keep the cops off the beat -- or whether the financial crisis actually changed something."
Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is said to be considering dropping the proposed independent agency from the Senate's financial reform bill.
But Warren isn't giving up. "We have all worked hard to make the CFPA into a reality, and the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again," the Harvard Law professor and advocate for the middle class wrote. "The next few weeks will determine whether families will have to play by rules written by the banks and for the banks -- rules that let the industry get away with anything. In my view, we cannot let families lose again."
The new agency would be equipped with the power to write rules governing basic consumer credit products like home mortgages and credit cards, and would have the authority to regulate big banks and monitor their compliance.
Federal bank regulators, who focus on the safety and soundness of the country's banking system, are mostly concerned with bank profitability, consumer advocates and law professors say. Consumer protection has not been a priority.
But there's been a growing recognition that the lack of adequate protection for consumers helped cause the financial meltdown of 2008.
President Obama and his advisers have repeatedly called for such an agency, arguing that it's the best way to protect consumers from the big banks. The House passed a financial reform bill modeled on his proposal in December.
Republicans have vowed to defeat any bill creating such an agency, arguing that its proposed powers are best left to the bank regulators. Federal banking regulators also oppose it, arguing that it's hard to separate bank regulation from consumer protection.
Blocking the CFPA has been atop the banking industry's legislative agenda since last summer. The industry has spent millions lobbying and campaigning against such an agency, which they argue would lead to increased costs and less credit for consumers.
The power of the bank lobby on Capitol Hill cannot be understated. As Sen. Dick Durbin (D-Ill.) put it in April, as a bankruptcy bill he championed went down in flames, "they frankly own the place."
According to multiple news reports, Dodd is proposing to ditch the CFPA as an independent agency. The goal, he says, is to secure Republican support for the overall legislation. Rather, he would ask Republicans to support a consumer-protection division within another federal agency, such as the Treasury Department or a regulatory agency.
But it's not lost on reformers that federal regulators and those they regulate appear to be in lock-step with one another. Just last week, the head of the country's second-biggest bank, Jamie Dimon of JPMorgan Chase, praised federal banking regulators.
"I have been completely clear throughout that regulators should not be blamed," Dimon said of the bank regulators and their perceived role in the near-meltdown of the nation's financial system. The regulators, after all, allowed banks like Dimon's to do whatever they wanted, critics allege, like giving mortgages to unqualified borrowers and then securitizing them for sale to unsuspecting investors, spreading risk throughout the system.
The lack of effective regulation was one of the main drivers behind the collapse. Now the question is will the new regulations be any better.
Warren writes in her letter: "The fate of the Consumer Financial Protection Agency will be the best way to follow the story moving forward because consumer products were the most abusive and because the CFPA has real muscle to stop those abuses," she wrote. "The CFPA would hire new cops and change the way big banks do business.
READ the entire letter:
The story of the financial crisis has a thousand twists and turns, but the basic narrative is easy to follow. The financial industry wrote rules that allowed it to act recklessly. The industry captured agencies that were supposed to regulate it, taking cops off the beat and funneling enormous resources into the political process to make sure there wouldn't be any new cops.
Then, with no laws to hold them back, the banks made hundreds of billions of dollars on the sales of deceptive products.
That went on for years, and the industry's tricks-and-traps pricing got more and more out of control. Eventually, the sale and re-sale of deceptive mortgages and other dangerous products made trillions of dollars for Wall Street while bringing down the American economy. When the industry's recklessness brought the biggest banks to the brink of collapse, Wall Street turned to the taxpayers for bailouts and guarantees, which put it right back into big profits and big bonuses. The industry got whatever it wanted.
Now we are coming to the final chapter of this story.
The final chapter will show whether we are going to let the industry continue to write the rules -- to keep the cops off the beat -- or whether the financial crisis actually changed something.
The fate of the Consumer Financial Protection Agency will be the best way to follow the story moving forward because consumer products were the most abusive and because the CFPA has real muscle to stop those abuses. The CFPA would hire new cops and change the way big banks do business.
We have all worked hard to make the CFPA into a reality, and the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again. The next few weeks will determine whether families will have to play by rules written by the banks and for the banks -- rules that let the industry get away with anything. In my view, we cannot let families lose again.
Like you, I read last week that the consumer agency is dead. I also read the same thing last spring, last summer, last fall, and last month. And I've been warned about the power of the banks since I first developed this idea in 2007. We always knew this was a David v. Goliath fight, but I don't believe that Washington can or will let Wall Street act like nothing has changed.
I am writing to ask you to make an extra effort these next few weeks to organize calls and emails into the Senate Banking Committee about CFPA, to organize op-ed and letter to the editor campaigns across the country, and to create visible, public support for CFPA. If everyone on this list called key Senators on the Senate Banking Committee, that would send a loud message -- and if your members will do the same, the message will get louder.
This is not the last important moment in the fight for the CFPA, but it is a critical one. You can count on me to do my part. Please help.