One of the most common arguments employed by the banking industry and conservatives in Congress against the creation of an independent Consumer Financial Protection Agency (CFPA) — which would be empowered to police abuses in consumer lending — is that that it will divorce consumer protection from the “safety and soundness” of banks, unnecessarily undermining the health of the financial system.
“What we don’t want to do is separate out the regulation of the entity from the regulation of the product, which is what the CFPA would do,” Scott Talbott, Senior Vice President for Government Affairs at The Financial Services Roundtable, has said. Creating a CFPA “would actually impair the ability of regulators to monitor the health of our financial institutions and undermine the safety and soundness of our banking system,” added Tom Donohue, president of the Chamber of Commerce.
One of the organizations leading this charge has been the American Bankers Association, which has said that “a more workable approach [to consumer protection] would be to bolster consumer protection and oversight while ensuring that the existing regulatory agencies retain both safety and soundness and consumer protection responsibilities.” But the ABA evidently hasn’t always felt this way.
As Elizabeth Warren, Chairman of the Congressional Oversight Panel for the Troubled Asset Relief Program, pointed out in a Politico op-ed today, the ABA in 2006 was advocating that consumer protection be broken away from bank regulation. Here’s what the ABA has to say regarding proposed guidance on nontraditional mortgage products:
The Guidance combines safety and soundness guidance with consumer protection guidance, creating confusion that is best addressed by separating the them [sic]…ABA is concerned that these apparent changes in supervisory and enforcement policy may arise simply from the Board trying to marry safety and soundness supervision with consumer protection supervision. The result of this marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines…[T]he combination of safety and soundness guidance with consumer protection guidance appears to create confusion in the Guidance.
ABA concluded that it “does not believe that the lender’s role is to limit the borrower’s choice of mortgage products or features for which he or she qualifies.” So the ABA explicitly argued that consumer protection is a responsibility is best taken on by an entity other than the bank regulators, adding that combining “safety and soundness” regulation with consumer protection would create confusion! As Warren put it, “this 2006 memo illustrates the ABA’s real consistency — consistent opposition to meaningful reform.”
The argument that consumer protection will undermine bank safety and soundness only holds water if you think that banks have to rip off customers in order to make money. And the ABA’s memo shows that it doesn’t actually believe in its own rhetoric; it’s just resorting to whatever argument will be most convenient in its push to derail financial reform.