For what seemed like an eternity, the financial regulatory reform debate was bogged down over the question of consumer protection. Democrats wanted to create an independent Consumer Financial Protection Agency (CFPA) — such as that passed by the House of Representatives last year — while Republicans wanted to leave consumer protection responsibilities with the already existing bank regulators, which essentially amounted to an endorsement of the status quo.
The GOP complaint at the time was that the new agency constituted an overreach, and they falsely claimed that it would have to power to regulate Main Street businesses and would undermine bank profitability. So Sen. Chris Dodd (D-CT) tried to compromise in his financial reform legislation by placing a Bureau of Consumer Financial Protection within the Federal Reserve (which didn’t garner him any votes in the Senate Banking Committee).
And evidently all the time spent on this issue hasn’t changed very much, as Sen. Richard Shelby (R-AL) said yesterday that consumer protection still constitutes the “biggest obstacle” to forging a financial reform deal:
“The biggest obstacle is probably the consumer agency and the reach and the scope of it right now,” Shelby told reporters at the Capitol. “If they will meet us halfway on that, I think we could get a bill.”
Remember, Shelby has said that bank profits should always trump “consumer finance whatever.” To get a sense of what the Republicans consider “halfway,” we can take a look at their financial reform “alternative,” which has been floating around today (though doesn’t seem to be owned by any GOP lawmaker in particular):
Title III creates an independent Council for Consumer Financial Protection (“Council”) that will have the authority to promulgate rules for all of the enumerated consumer protection statutes. The Council will be composed of three independent consumer protection experts, the Chairperson of the FDIC, the Comptroller of the Currency, and the Chairman of the Board of Governors for the Federal Reserve. The composition of the Council will ensure that all rules, regulations arid orders promulgated by the Council appropriately consider the, safety and soundness considerations of financial institutions while ensuring that adequate consumer safeguards are in place.
A council, particularly one without a clearly defined director, will be almost powerless to stand up to the bank regulators. And of course, since the regulators themselves sit on the council, the council will almost inevitably be relegated to secondary status, all but enshrining that bank profitability is more important than consumer protection. Rep. Walt Minnick (D-ID) and a band of conservative Democrats had the same idea during the House financial reform debate, and it’s as bad now as it was then.
Plus, to make matters worse, the Republican alternative allows the federal government to preempt any and all consumer protection rules that individual states might put in place. So As Matt Yglesias put it, “on the one hand, [the GOP alternative] seemingly weakens the independence of the consumer regulator. On the other hand, it has the consumer regulator preempt any and all state regulations. This is a helpful reminder that nobody on the right actually gives a damn about federalism except as a tool to advance conservative substantive policy.”