Bank Regulator Flips, Now Supports An Independent Consumer Protection Agency

Comptroller of the Currency John Dugan

Comptroller of the Currency John Dugan

For months, the Office of the Comptroller of the Currency — led by John “master of disaster” Dugan — has been lobbying against the creation of an independent Consumer Financial Protection Agency (CFPA). The OCC is responsible for regulating nationally chartered banks, and was instrumental in allowing pernicious subprime lending to spread by exempting national banks from predatory lending laws in many states.

Up to this point, the OCC has been parroting the banking industry’s line that an independent CFPA would undermine bank “safety and soundness.” Dugan has been particularly vocal with his opposition, saying that the current consumer protection system “works fine.” He even reacted to Senate Banking Committee Chairman Chris Dodd’s (D-CT) regulatory reform legislation by saying “in every case consumer protection has the edge and will trump safety and soundness and I think that is backwards.”

But today, as Shahien Nasiripour reported, the OCC has abruptly changed positions and now supports creating an independent agency:

The OCC’s position on the proposal has “evolved over time” from one of minimal support with several caveats to one in which they now are “very much in favor of,” deputy comptroller for public affairs Robert M. Garsson told the Huffington Post on Tuesday…“It’s unlikely there will be any meaningful conflicts between safety and soundness and consumer protection,” Garsson said. “The potential for conflicts is very rare.”

With this “evolution,” the OCC is joining the growing consensus among current and former regulators that having a separate consumer protection agency will not undermine bank safety and soundness. “I cannot recall a meeting I sat in where we worried about consumer protection and looked at safety and soundness and said the two are in conflict so how do we solve this,” said Kevin Jacques, a former OCC official. “I would love to see one regulator provide a concrete example where safety and soundness and consumer protection are in conflict and it caused some difficulty. I can’t think of one.”

“In my experience I do not recall seeing a case where a consumer protection regulation was found to pose a threat to safe and sound operations of the banks,” added Brad Sabel, a former New York Federal Reserve Bank official. Of course, even the banks themselves don’t really buy that a CFPA would undermine their soundness. As Elizabeth Warren pointed out yesterday, back in 2006 the banks were arguing that it would be too confusing to combine consumer protection and bank regulation, and that the problem was “best addressed by separating them.”

So why did the OCC flip? Is it the scathing New York Times piece that was published this week? Or was it pressure from the Obama administration, since the OCC is technically a division of Treasury, yet was going around and bashing an administration priority?

Whatever the case, I’m still skeptical that the OCC is really on board with a consumer protection entity that will have enough independence to be effective; it may just be positioning itself to water-down the agency’s power somewhere down the road. But at least the OCC is willing to be one more voice acknowledging that the banks’ main argument against creating the agency is bunk.