One of the problems with delaying implementation of the various regulatory reforms that are being proposed is that financial services companies are given ample time to get back to their old tricks. For instance, as executive compensation reforms stall in the Senate, Wall Street pay is heading back to pre-crisis levels.
And the same holds true in terms of consumer protection. House Financial Services Committee Chairman Barney Frank (D-MA) has had to push back work on legislation creating a new Consumer Financial Protection Agency (CFPA), thanks to Republican and industry intransigence. And as BusinessWeek reported, “already some of the world’s biggest banks are peddling a new generation of dicey products to corporations, consumers, and investors”:
In recent months such big banks as Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) have rolled out newfangled corporate credit lines tied to complicated and volatile derivatives. Others, including Wells Fargo (WFC) and Fifth Third (FITB), are offering payday-loan programs aimed at cash-strapped consumers. Still others are marketing new, potentially risky “structured notes” to small investors…[I]t’s another scenario that worries regulators, lawmakers, and consumer advocates: that banks once again are making dangerous loans to borrowers who can’t repay them and selling toxic investments to investors who don’t understand the risks — all of which could cause blowups in the banking sector and weigh on the economy.
All of these banks, incidentally, received TARP money. For Wells Fargo, this is especially pernicious, as it is already being investigated for intentionally pushing minorities who qualified for prime loans into subprime.
The CFPA proposal is currently under siege on multiple fronts. Republicans are teaming up with the financial services industry to coordinate anti-CFPA messaging and events over the August recess, while regulators from already existing agencies are engaged in a turf battle with Treasury Secretary Tim Geithner over the new agency’s creation. Comptroller of the Currency John Dugan — “who faces the loss of some of his powers if the plan is implemented” — has been deriding the CFPA because it “would make it more difficult and costly for large lenders to operate across the country.”
As we’ve seen, the current regulatory framework simply doesn’t provide adequate protection to consumers. And while Congress dithers, the banks are getting back to business as usual.