Today, the Senate plans to vote on Sen. Richard Shelby’s (R-AL) consumer protection amendment to Sen. Chris Dodd’s (D-CT) financial regulatory reform bill. As I pointed out yesterday, Shelby’s amendment is remarkable in that it not only gives a bank regulator veto power over the new consumer division’s rulemaking authority, but it prevents the division from enforcing consumer protection rules against almost the entire financial system. Commercial banks, investment banks, payday lenders, auto dealers, check cashers, and non-banks that deal in products other than mortgages (such as AIG) would all be exempt from the division’s enforcement.
But of course, the Shelby amendment has its supporters. Sen. Mike Johanns (R-NE) — who has previously made outlandish claims about the attempt to create an independent consumer protection agency — took to the floor today to make two attacks against Dodd’s bill, while offering his support for Shelby’s amendment:
The current bill really changes current federal law under the guise of giving states more power over their consumer protection laws…This will wreak havoc for financial companies operating in more than one state…[The bill] would subject numerous merchants to the regulation of this new Bureau [of Consumer Protection] just because the business provides the ability to their customers to repay in four installments…That’s why the dentists, the lawyers, the advertising agencies, and even the florists are concerned with this bill and are showing up in our offices saying ‘what are you doing?’
Johanns endorsed the Shelby amendment as a “well thought out,” “reasonable approach.”
Johanns is employing two arguments here. The first has to do with federal preemption, the pernicious practice of federal bank regulators overruling states that try to write and enforce tough consumer protection laws. States like Georgia and New Jersey tried to reel in predatory subprime lending in 2002 and 2003, but federal bank regulators stopped them in their tracks. Dodd’s bill would force regulators to preempt state law on a case-by-case basis (which still isn’t great), while the Republican alternative would grant the banks blanket preemption, rendering every state’s consumer protection efforts moot henceforth. It seems odd that the party so concerned with states’ rights would advocate nullifying state laws before they’re even written.
Johanns then moves onto the common Republican canard about the consumer protection provisions applying to small businesses like florists, which is a myth that just won’t go away. However, Section 1027 of Dodd’s bill clearly lays out an exemption for merchants and sellers of non-financial services.
Conservatives keep getting hung up on a provision that says a payment plan consisting of more than four installments could be considered for regulation by the consumer regulator, but the very next provision (on page 1082) emphasizes that this doesn’t apply to any company “not engaged significantly in offering or providing consumer financial products or services.”
Is a dentist “engaged significantly” in selling financial products? Is a florist? Or is the GOP just searching for a reason to vote against enhancing consumer protection?