Obama's "Most Wanted" Finance Loopholes
The White House is targeting ten of what it has dubbed the "Most Wanted" lobbyist loopholes in the ongoing financial regulatory reform fight. Essentially these are the items big lobbying organizations, like the US Chamber of Commerce and the Financial Services Roundtable, are pushing hardest on in order to blunt the effects of new reforms. Here are the highlight from the "Most Wanted" list, penned by White House communications guru Dan Pfeiffer.
Ok, Consumer Protection Rules are Fine...Just Don't Enforce Them. Lobbyists are pushing hard to amend the bill so that Attorneys General lose their enforcement authority. Why does that matter? Because the Bureau would only supervise larger market participants. Without state AG enforcement authority, the citizens of their states will have much less protection against illegal conduct. If you want to weaken consumer protections, that's one way to do it.
Letting Non-Banks Play by a Weaker Set of Rules. We know this is coming, so keep an eye out: attempts to give car dealers that make car loans and other major providers of financial services a big exemption from the consumer protection rules. Now be aware: some people try to scare small businesses by saying that the consumer financial protection bureau will regulate main street businesses like orthodontists and florists. That is not true. But if a car dealer makes loans, or if a big department store sets up a financial services center, it’s doing what banks and credit unions do, and it should play by the same rules.
Preventing States from Protecting Their Own Citizens. Under the current bill, the Bureau of Consumer Financial Protection would set minimum standards for the consumer finance market, but states would still be allowed to adopt additional protections. In other words, federal consumer protections would set a floor, not a ceiling. There’s likely to be a fight about that provision. Citing the doctrine of “preemption,” big banks will try to take away states’ ability to supplement federal consumer protections. Why is this a problem? Because state officials are often the first to learn of new abuses and new problems in the marketplace, and we should not get rid of that canary in the coal mine. Federal law can overrule or “preempt” state law when a state law would significantly interfere with national banks’ business of banking, but states should otherwise have the right to protect their citizens as they see fit.
Preserving “Too Big to Fail” While Pretending to Kill It. The key to preventing future bailouts is to end the problem of “Too Big to Fail.” And the only way to do that is to make sure that we can shut down big financial firms in a swift, orderly way if they’re on the brink of failure. Of course, not everyone wants to see “Too Big to Fail” disappear, since it lets the biggest firms borrow money at lower cost and avoid the consequences of excessive risk-taking. But no one wants to be caught defending the status quo. So defenders of the status quo are using a sleight of hand: pushing to make the resolution process so unwieldy that it can never work. By proposing amendments that look tough but that make the resolution process unworkable, opponents of reform will try to save “Too Big to Fail” while pretending to kill it.
These are all important points from Pfeiffer, and all provisions or rules still in play as the financial reform debate hits full stride this week. Some of them we've already covered here at MoJo, with our "Five Fights to Watch" a few weeks ago. This week, the deluge of amendments to the financial reform bill will begin, as will votes on those amendments. Some of those amendments will seek to bolster the bill, like Sen. Byron Dorgan's (D-ND) which would give a new financial oversight council the power to break up overly big banks. Other amendments, likely from the Republican camp, will seek to pare down the council's too-big-to-fail oversight power and the independence of the proposed consumer agency. All in all, it'll be a bruiser of a week on the path toward rewriting the rules of our financial system.