If you need any more reason to distrust Wall Street's lobbying armada, which has spent millions to undercut a new financial reform bill, then look no further than an op-ed from Elizabeth Warren, the staunch consumer advocate and bailout watchdog, published today. In it, Warren highlights the utter hypocrisy of the banking lobby's aim to neuter, if not outright kill, a new, independent consumer financial protection agency.
Among the banking lobby's top talking points for fighting this consumer agency is that it would separate what's called "safety and soundness" regulation (your run-of-the-mill bank oversight, basically) and consumer protection measures, like cracking down on predatory lenders, usurious interest rates, and unfair credit card penalties. For instance, Scott Talbott, a top lobbyist for the Financial Services Roundtable, a powerful finance trade organization, told the New York Times that his organization "believe[s] that consumer protection and bank supervision should be housed under the same roof."
But as Warren points out, the position of Big Finance's biggest advocacy group, the American Bankers Association, was the exact opposite just a few years ago. In 2006, the FDIC, Federal Reserve, and other government regulators were considering allowing bank regulators to keep an eye on subprime mortgages, those tricky—and toxic—products that would help topple the economy. The ABA, when it caught wind of this potential move, sent a letter to the FDIC arguing against merging bank oversight and consumer protection, saying this "marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines." The association recommended that "the safety and soundness provisions relating to underwriting and portfolio management be separated from the consumer protection provisions." (The ABA, in a sign of true prescience, also said subprime mortgages weren't "inherently riskier" than plain vanilla mortgages and that letting bank regulators oversee subprime loans "overstates the risk" of them.)
This, Warren concludes, shows that Wall Street's "lobbyists’ consistent theme is unmistakable: they oppose meaningful rules in the consumer credit market." She goes to write:
The ABA’s premise that the country can’t have both meaningful consumer protection and safety and soundness is wrong. In fact, its defense against an independent consumer agency boils down to this: if banks can’t trick and trap people with fine print and legalese, they won’t be able to turn a profit.
When other industries have argued that tricking their customers is an essential part of their profit model, they haven’t gotten far. For example, it might be profitable in the short run to substitute baking soda for antibiotics, but basic safety regulations prevent such moves—and the pharmaceutical industry still manages to do just fine. In fact, the industry flourishes, bringing better, cheaper products to customers.
Similarly, the consumer agency now before the Senate is designed to cut out tricks and traps pricing, fine print that no one can read, and sharp practices that strip billions of dollars from consumers...
In the weeks ahead, the Senate does not need to decide between safety and soundness and consumer protection.