Consumer Watchdog – How will the proposed Consumer Financial Protection Agency weather industry attacks?

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.