"Republican Policy Committee Reveals Where GOP Will Aim To Weaken Financial Reform"
Next week, the Senate will begin to vote on amendments to Sen. Chris Dodd’s (D-CT) financial regulatory reform bill, and a slew of proposals are expected from both the right and the left. For instance, Sen. Ted Kaufman (D-DE), along with Sen. Sherrod Brown (D-OH), have an amendment capping bank size, while Sens. Jeff Merkley (D-OR) and Carl Levin (D-MI) are planning an amendment institutionalizing the Volcker rule, which would prevent banks from trading for their own benefit with federally insured dollars.
Republicans, meanwhile, are planning amendments aimed at weakening Dodd’s Bureau of Consumer Financial Protection and blowing holes in Sen. Blanche Lincoln’s (D-AR) surprisingly strong derivatives regulation. But those are fairly high-profile issues.
As evidenced by a document released today by the Senate Republican Policy Committee (RPC), the GOP is also taking aim at some smaller issues, which nevertheless could significantly impede the effectiveness of financial reform. Here are two points made by the RPC that show where the debate is headed:
– The bill creates overlapping and potentially conflicting regulations: The Dodd bill does not fully and clearly preempt state law. Indeed, the bill provides that it does not preempt state laws that provide greater protection than federal law.
– The bill would weaken arbitration, harming consumers and investors. Arbitration is a form of alternative dispute resolution that has long been recognized as an effective tool for efficiently and fairly resolving disputes.
Both of these statements are absolutely true: Dodd’s bill wouldn’t preempt state law and would weaken arbitration. But, contrary to the RPC’s assertions, these are important steps that will protect consumers from the excesses of the financial industry.
Preemption of state law, as I’ve discussed here often, played a large role in allowing the subprime crisis to spread. Many states had laws that went further on cracking down on shoddy lending than federal law, but President Bush’s regulators preempted them, stopping states in their tracks and allowing pernicious lending practices to continue unabated.
Arbitration, meanwhile, is a practice used by the financial industry to ensure that it can’t be sued for exploitative business practices. As Ian Milhiser has pointed out, “for years, the banking industry has padded its profits by forcing consumers to sign a ‘forced arbitration’ agreement denying them to right to sue the bank in a real court, and instead forcing any disputes between the bank and a lender into a biased, corporate-run forum that rules in favor of the banking industry 95% of the time.”
The banking industry is going all out against this legislation, as it is strong in a number of areas and would change the dynamic between consumers and the financial industry in many ways. And it’s these sorts of little changes, in parts of the bill that aren’t getting the headlines, where the industry, aided by willing Republicans, can have a lot of success. Proponents of the bill will have to take a stand against these sort of changes.