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May 14, 2010

Consumer Financial Protection Faces Hurdles

Posted in: Uncategorized

If you were to ask me where Wall Street reform stands right now, I’d give it an incomplete. Well, actually I’d give it a C. There are some decent measures in the Senate bill, even a couple transformative ones, but overall some gaps in the regulatory structure remain, and the same financial oligarchs will have the ability to overrun the system, if in different ways. The House bill is also about a C, but in different ways; it’s better by instituting a hard leverage cap, it’s worse on derivatives, etc. That C could turn into an A if some strengthening amendments come through, or if the best of both the House and Senate bills come out of conference. And it could turn into an F if the opposite occurs: if conference weakens the overall bill, and if the worst amendments still remaining get folded into the overall package.

The ones to really watch out for are the weakening of the derivatives piece, which I went over earlier, and the gutting of consumer protection. The CFPA is already weaker in this bill by virtue of being housed inside the Fed, albeit with a purportedly independent director and budget, and (mostly) independent rulemaking authority. But carving out exemptions for specific kinds of industries, as well as taking cops off the beat by pre-empting state consumer protection laws, would make it intolerable. And this is where the defenders of privilege are attacking.

In a piece about interchange fees (actually one of the strongest consumer protection measures now in the bill), USA Today suggests that the auto dealer exemption, part of the House bill, could get tucked into the Senate as well, despite White House opposition.

The Senate put off a vote on a contentious amendment to the regulatory bill. The amendment would exclude auto dealers that offer loans to car buyers outside the reach of a proposed consumer financial protection agency. President Barack Obama argued against the exemption Wednesday, but Democrats feared that even by requiring 60 votes to pass it, they would be unable to defeat it.

Wow. I know that car dealers represent a powerful lobby, but the fact that they could attract almost half the Democratic caucus – at least 19 in a 60-vote environment – despite the leadership and the White House’s opposition makes them pretty formidable.

Similarly, the measure to stop Attorneys General from prosecuting banks for illegal activities through the pre-emption statute has substantial Democratic support.

The fear is that Democrats, unable to move the bill without these two pieces, would tuck them into a “manager’s amendment” at the end of the debate, and force a “take it or leave it” vote on the chamber. Democrats have succeeded thus far by daring Republicans to vote against the bill and for Wall Street; gutting consumer protections would basically dare Democrats to do the same, even if the opposite would be true.

The best thing that the White House could do right now to put a stop to this would be to issue a veto threat. They claim to oppose pre-emption and carve-outs to the CFPA; they have been its champion throughout this debate; they have given a lot of attention to the issue. If they say they won’t sign a bill with these weakening amendments, then it’s the ConservaDems who have to choose between ordinary people and Wall Street, not liberals in a kabuki debate. We’ll see if the White House is as strong as their convictions over the next few days.


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