Today, the Senate debated Sen. Richard Shelby’s (R-AL) consumer protection amendment to Sen. Chris Dodd’s (D-CT) financial regulatory reform bill. As I’ve noted, Shelby’s amendment would gut the Dodd bill and prevent the consumer protection regulator from enforcing its rules against almost every institution in the financial system. It would also undermine the ability of individual states to police consumer lending practices.
Sen. Bob Corker (R-TN) took to the Senate floor today to make his case against Dodd’s consumer protection title because the newly created Bureau of Consumer Financial Protection would have the ability to outlaw certain predatory products. He claimed that such power “has to undermine the safety and soundness of our financial institutions”:
One of the things that I think is most disruptive about this legislation is that, if you can imagine this. I think all of us realize that what led to this last crisis was we had very poor underwriting and loans. I mean, that was the essence of this last crisis, it got spread around the world, the fact that we had very poor underwriting…But what the Dodd bill does is give to a consumer protection agency loan underwriting standards. Now, if you can imagine that, I’d like people in this body to think about that, but a consumer protection agency being involved in setting underwriting standards for loans has to undermine the safety and soundness of our financial institutions. To me, that is a huge problem.
What Corker is saying, when you boil it down, is that banks have to rip off customers in order to make money. Without the ability to use predatory products, according to Corker, banks won’t be able to make a profit and will fall apart.
Not only is this preposterous — banks can get along perfectly fine employing only traditional banking products — but it is a very dim view of how we should protect financial consumers. While consumers should obviously be aware of the risks of financial products, there are some products that serve no purpose aside from trying to separate the buyer from his or her money.
As National Economic Council Director Larry Summers said last week, “we don’t allow you to sell baby seats that are unsafe for babies…I don’t see the problem with some regulation that actually goes to the content of the product.” Stephen Lubben put it this way at Credit Slips, when Shelby made a similar argument:
Did toaster companies go out of business when the Consumer Product Safety Commission stopped letting them sell exploding toasters? I guess the ones who couldn’t make it selling legitimate toasters did — but the Senator can’t really be saying that America’s banking industry is like a shoddy toaster company, can he?
Sen. Chris Dodd (D-CT) aptly called Shelby’s amendment “a stimulus package for scam artists.” And that’s exactly what it is: an argument for preserving the banks’ ability to prey on consumers.
Shelby’s amendment was defeated on a 38-61 vote. Sens. Olympia Snowe (R-ME) and Chuck Grassley (R-IA) voted no.