Update continued

6/23/10

Unfortunately, consumers have already been victimized by political expediency.  Rep. Barney Frank has agreed to house the Consumer Financial Protection Agency/Bureau within the Federal Reserve, as proposed in the Senate version of the bill.  As noted in our last update, Citizen Works is strongly in favor of an independent agency, and believes that putting the body within the Fed might limit its ability to protect the interests of the public.  However, we, like Prof. Elizabeth Warren, remain cautiously optimistic that the agency, wherever housed, will use its authority wisely and resist pressures from Wall Street and corporate America to keep the imbalance of power skewed in their favor.

A compromise was also reached on the issue of interchange fees, which, among other things, would exempt government-issued debit cards and reloadable prepaid debit cards from certain regulations, allow issuers to factor in fraud prevention costs when calculating fees, and clarifying that merchants cannot be prevented from offering discounts for a particular form of payment (e.g., cash).

It was widely reported on June 22 that legislators had agreed to exempt auto dealers from regulation, however, there appears to be some debate as to whether the “compromise” language would actually result in such an exemption.  Citizen Works opposes any such exemption for auto dealers; as noted by Alain Sherter at bNet, auto loans are a prime source of consumer fraud, and dealers’ claims that they merely facilitate loans by third parties ring hollow.

We urge lawmakers not to give any more ground to the financial lobby and other forces working to weaken the reform bill.  In this, the home stretch, citizens should redouble their efforts to let their elected representatives know that this issue is an important one, and one that will remain on their minds come Election Day.

6/1/10

On May 20, 2010, the Senate passed, by a 59-39 vote, a version of the financial reform bill.  The bill passed with two Democratic Senators voting against, and four Republicans voting for.  And people on both sides of the issue remain unhappy.

There are significant differences between the Senate and house versions of the bill, explained in this chart and this article from the New York Times, and this more comprehensive chart from the House Committee on Financial Services.  Key among the differences is the placement of the Consumer Financial Protection Bureau within the Federal Reserve, as opposed to the creation of a nominally independent CFPA.  As noted in one of our prior updates, Senator Chuck Schumer (D-NY) had introduced an amendment to the Senate bill, which would have established a truly independent Financial Consumers Association.  Unfortunately, this amendment failed to come to a vote.  Ralph Nader, notes, this failure speaks volumes about the Senate’s lack of dedication to its constituents and their interests. 

Now begins the process of reconciling the House and Senate versions of the bill.  Though lawmakers and the White House have indicated that they believe the process can be accomplished in time to have a final bill on the President’s desk by July 4, some observers have noted the challenges that may be presented in reconciling the two bills. 

Though the conference process will no doubt require compromise, we urge Congress not to allow the desire merely to get “some law” on the books to compel them to further weaken the protections embodied in the two bills.  Rather, the goal should be to compile from the House and Senate versions the strongest, most protective law possible.  Even assuming that Congress takes the strongest of the provisions from each of the bills, the resulting law will still be only a first step, albeit a significant one, in leveling the playing field between consumers and the financial industry.  Citizen Works urges all consumers to demand that their elected representatives pass a strong financial reform bill.

5/7/10

The financial reform legislation that includes the Consumer Financial Protection Bureau has been generating vigorous debate, both within the Senate, and between Senate Republicans and the Obama administration.

Democrats have been using the SEC’s recent allegations of fraud against Goldman Sachs as ammunition in further attempts to convince the Republican Senators that strong regulation is necessary.  For their part, the Republicans – all 41 of them – signed a letter on April 16 expressing their opposition to the bill “as currently constructed,” based in part on the contention that it “allows for endless taxpayer bailouts of Wall Street and establishes new and unlimited regulatory powers that will stifle small businesses and community banks.”

The President has publicly chided Sen. Mitch McConnell (R-KY) for perpetuating the rumor of endless bailouts.  Some commentators see cause for optimism, and believe that the Democrats and Republicans are much closer to agreement on a bill that could pass the Senate than the rhetoric would indicate.

Debate began in earnest in the Senate on April 29, after Republicans had blocked three  prior votes to begin official consideration of the bill.  According to Sen. Richard Shelby (R-TN), Sen. Chris Dodd (D-CT) assured Shelby that steps will be taken to address the alleged inclusion in the bill of provisions for future bailouts of financial firms.

Senator Schumer has introduced an amendment, Amendment #3772 to S. 3217, to provide for the establishment of an independent Financial Consumers Association.  Citizen Works supports the creation of a Financial Consumers Association, as do multiple consumer advocacy groups, including Consumers Union, Public Citizen, Consumer Federation of America, the National Consumer Law Center, USPIRG, and the National Association of Consumer Advocates.   

Show your support by calling your Senators today to urge the passage of this important addition to the Consumer Financial Protection Bureau.  For more information, visit csrl.org or wallstreetwatch.org. 

Update 3/16/10

In the last month, Senators Dodd (D-CT) and Corker (R-TN) spent some quality time together to hash out a bill that might garner enough support in Congress to become law.  With every negotiation session, however, the proposal veered further off course from Dodd’s original strong support for meaningful reform, which included an independent Consumer Financial Protection Agency with real regulatory powers.

After talks collapsed, on March 15, 2010, Senator Dodd unveiled his version (PDF) of the Senate financial reform bill.  Unfortunately, the bill provides for a Bureau of Consumer Financial Protection to be housed within the Federal Reserve, rather than the creation of a truly independent consumer financial agency. 

While some commentators believe that the Bureau is not substantially different in terms of its independence than the CFPA that was incorporated into the House bill passed in December, others point out that housing it within the Fed, the agency whose failures have contributed to the financial crisis, is at minimum a symbolic defeat.

The proposed bill lays out the blueprints for the new body in Title X.  The summary (PDF) put together by the banking committee refers to the Bureau as an “independent watchdog,” and notes that the Bureau will be headed up by an individual appointed by the President and confirmed by the Senate.  It stresses the Bureau’s authority to promulgate and enforce regulations with regard to banks and non-bank financial entities with assets exceeding $10 billion, and the establishment of a consumer hotline, substantially as set forth in the House bill.

Dodd’s Title X appears to be largely in line with Title IV of the House bill.  The rulemaking and enforcement powers of the Bureau appear to be substantially similar to those that would have been entrusted to the CFPA under the House bill.  Several of the deficiencies identified by some commentators, such as the inability to declare a practice unlawful unless it was likely to cause substantial injury to consumers, are present in the House bill as well.

Senator Dodd did not live up to his initial promise to fight for a truly independent and powerful agency to protect consumers.  The draft bill should not be further weakened in an effort to attract Republican votes; should the Senate pass a version of the bill, the House/Senate conference process should result in the enactment of the strongest law possible.

Update from 2/16/10

In December 2009, the House passed the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173), including the proposed Consumer Financial Protection Agency (“CFPA”).  The “financial reform” legislation contains the blueprint for the establishment of a CFPA as Title IV, the Consumer Financial Protection Agency Act (“CFPA Act” or the “Act”). The Congressional Research Service summarized the CFPA Act here.

While not as comprehensive in its consumer protection functions as we might have hoped (and certainly not a replacement for the independent, citizen-managed Consumer Financial Association Citizen Works urges Congress to support), the Act is important. 

The stated objectives of the CFPA include ensuring that, with respect to consumer financial products or services: consumers “have and can use the information they need to make responsible decisions”; that they are protected from abuse, deception, etc.; and that markets for these products and services are fair and efficient.  It provides for the establishment of an advisory board (the Consumer Financial Protection Oversight Board) made up of the heads of certain other regulatory agencies, including the FDIC and FTC, and also a “Consumer Advisory Board” made up of “experts” in relevant disciplines.  The CFPA itself is to be organized into divisions—Research, Community Affairs, Consumer Complaints, and Consumer Financial Education—and must establish a toll-free number for inquiries by consumers, including the ability to transfer calls to a different agency where appropriate.

The CFPA would be vested with authority to conduct examinations of entities subject to the Act to ensure compliance, and to take over supervision of certain entities where another supervisory agency is found not to have been exercising that authority appropriately.  The agency would also have the authority to prohibit or limit the use of mandatory arbitration provisions in any covered transactions, a significant power that we support.  However, it would not have the power to limit usurious rates, the elimination of which has been problematic for consumers and their mounting debt (credit cards, payday loans, mortgages, etc.) since 1978.

Prohibition of “unfair, deceptive, or abusive acts or practices” would be the CFPA’s main function. It would be empowered to mandate meaningful disclosures in connection with the sale or marketing of financial products and to otherwise regulate sales practices, including the imposition of particular duties on those dealing with consumers.  The Act would also require that information about financial transactions be made electronically available to consumers.  International money transfers are addressed in great detail, both in terms of required disclosures and consumer right to cancel transactions within a specified period of time after receiving the disclosures.  The Act also calls for the establishment of independence requirements for residential mortgage loan appraisals.  The CFPA would have broad investigatory and enforcement powers, including the ability to issues subpoenas and Civil Investigative Demands and conduct administrative proceedings in place of, or ancillary to, federal court litigation.  Violations of the Act could result in civil penalties of up to $1 million per day.

The U.S. Chamber of Commerce has engaged in a fear-mongering campaign, well documented on its website, www.stopthecfpa.com, to oppose the establishment of the CFPA.  Opposition has been gaining traction in the Senate. The main thrust of the campaign is that the CFPA is “big government,” and would duplicate the efforts of other regulators, rather than consolidating authority currently exercised by multiple agencies and refocusing this authority to have as its primary function the protection of consumers—including consumers of credit, such as small businesses.

The Chamber argues that passage of the Act would have a devastating impact on small businesses, by, among other things, cutting off their access to credit.  This article by Gary Weiss calls out the Chamber for purporting to represent the interests of small businesses, and notes that certain small business organizations have been organizing a sort of counter-resistance.  Senator Chris Dodd (D-CT), Chair of the Senate Banking Committee, who had initially been a strong proponent of the CFPA in its most robust, independent form, announced on February 11, 2010 that he will be “negotiating” with Senator Bob Corker (R-TN) to achieve a compromise solution.  This agreement to go back to the drawing board may be the death knell for the CFPA. 

This would be a mistake, as Harvard professor Elizabeth Warren spells out in her February 9, 2010 Wall Street Journal opinion piece:

"Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren't selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees….***

Within the thousands of pages of print in the "Restoring American Financial Stability Act" now before the Senate, the consumer agency is the only proposal that would help families directly. Even those most concerned about the role of personal responsibility concede that it is hard for families to make smart decisions and to compare products when the paperwork on mortgages, credit cards and even checking accounts has morphed into reams of incomprehensible legalese."

Elizabeth Warren is right.  Senator Dodd and his colleagues should resist pressure to scrap the proposal to create an agency that will be dedicated to meaningful protection for consumers.  Indeed, Dodd should be championing this provision and consumers as he retires from the Senate, rather than bowing to nervous big business interests.

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