The first hour of debate just finished in the House
Financial Services Committee on the proposed Consumer Financial Protection
Agency. This is the agency that's supposed to rein in abusive credit cards, mortgages and checking accounts, and all the other financial tricks that made Wall Street money at consumers' expense. It's meant to demonstrate a new federal commitment to financial consumer protection.
The committee's first point of business – who’s covered? Will the
Agency watch out for abuse by the company who creates your credit score, or only the credit card
company that uses it to jack up your interest rate? Will it be able to rein in auto dealers getting kickbacks for pushing minority buyers into higher cost loans? Or only the banks that finance those
loans? A rash of exemptions showed up in versions of the bill offered over the
last few weeks, but hopefully it comes down to what chairman Barney Frank laid
out today: If you’re involved in financial services you’re covered. If you
don’t, you’re not.
We’re glad to hear that consumer reporting agencies – whose
data determines who gets credit and what they pay for it – are supposed to be roped back
into the Agency’s jurisdiction. (Though the three companies that gave $1.6
million to members of Congress since the 2000 elections may not be.) We’ll be anxiously
awaiting what other loopholes are closed.
Here’s the background: The financial industry is in full
attack mode trying to fend off strong oversight in the wake of last year’s
spectacular economic collapse. They’ve put a lot of cash behind their efforts. As the Sunlight Foundation reported this week:
Twenty-seven (House Financial Services) committee members have so far received over
one-quarter of their contributions from the finance, insurance and real estate
(FIRE) sector. This includes Chair Barney Frank, Ranking Member Spencer Bachus,
four subcommittee chairs and four subcommittee ranking members. Of the
twenty-seven, twelve committee members received over 35% of their contributions
in 2009 from the FIRE sector.
Also this week, Public Citizen followed the money and found that:
The four largest banks contributed $16.9 million to federal
political campaigns and spent $23 million lobbying in 2008.
Two lawmakers - Reps. Bean and Moore - who are pushing to weaken the agency have
raked in the dough:
Two-thirds of Bean’s campaign cash for the 2010 cycle -
$438,337 of $668,677 - comes from lobbyists and lobbyist-connected PACs.
Forty-two percent - $269,800 of $668,677 - of Bean’s cash comes from the
finance, insurance and real estate (FIRE) industries. The data also show that
two-thirds of Bean’s campaign money comes from political action committees (PACs)
and that 53 percent of her PAC money is from FIRE industries.
Rep. Dennis Moore (D-Kan.) is also working to weaken the
agency, and he too is swimming in industry money. He has received half his
campaign cash this year from the finance sector - $139,097 of $273,683,
including 65 percent of his PAC money ($98,397 of $174,897). More than 60
percent of Moore’s 2009 contributions ($168,469 of his $273,683) have come from
lobbyists and lobbyist-connected PACs. Moore is seeking to make the agency
toothless by taking away its authority to enforce its own rules.
At the end of the day, the financial industry is using the
same tired arguments – burdensome regulation will hurt financial markets and
limit consumer credit – that they used to convince Congress to deregulate the
financial system in the first place. These outdated arguments gave us the
no-doc mortgages, naked credit default swaps, regulatory arbitrage and wild
speculation that landed us in financial crisis. What we have learned is that
consumer protection matters not only to individuals, but to the nation's economic strength and stability.
If the banks succeed in their attack, and
defang the CFPA before it gets off the ground, consumers will be worse off
than we are today with 'reform' enacted but no real change in the status quo.
Some areas that we’ll be watching as the debate
continues bright and early tomorrow morning: Whether all credit-related transactions remain in the
agency’s jurisdiction, if the states are allowed to enact strong protections for consumers
when federal regulators do not, whether anyone has the courage to re-introduce language requiring companies to offer consumers a simple, understandable product, and if consumers have a way to participate in the new agency to make regulation work for the public.