Bank Of America Throws Support To An Independent Consumer Protection Agency — With A Catch

Last week, it was the Office of the Comptroller of the Currency and Sen. Richard Shelby (R-AL). This week, it is evidently Bank of America’s turn to break with the rest of the financial services industry and lend its support to the creation of an independent Consumer Financial Protection Agency (CFPA). American Banker reported:

Bank of America Corp. is breaking ranks with other large banks and agreeing to support beefed up consumer-protection provisions in regulatory reform legislation, several sources said Wednesday…Until now, B of A has officially stayed neutral on a consumer protection unit but it has been fiercely opposed by the banking industry, which argues it could write rules that conflict with safety and soundness standards. But at a meeting with several community groups on Wednesday, top B of A executives said they were ready to give a consumer protection agency their support under certain conditions.

And therein lies the catch. While it is helpful to have a high-profile bank break with the rest of the industry and deliver one more blow to the false claim that consumer protection necessarily undermines bank safety and soundness, BofA, like Shelby and the OCC, seems to be positioning itself to make demands on other fronts in exchange for concessions on consumer protection.

So what does BofA want? Well, according to one of its spokesman, “we support the idea of a consumer protection entity, consistent with the principles of federal preemption.” The “principles of federal preemption” would seriously blunt the push for strong consumer protection.


Complete federal preemption would mean that nationally chartered banks, like BofA, would be immune from state consumer protection laws that go further than those set at the national level. As envisioned by the Obama administration, federal regulations would be a floor, and not a ceiling, for regulation, and if the states see a particular problem on the ground, they would be able to react. Treasury Secretary Tim Geithner reiterated this last week, saying that states will have a “crucial role” in policing predatory lending going forward.

During the housing bubble’s buildup, many states tried to enforce tougher rules against subprime lenders, only to be preempted by federal regulators under the Bush administration. BofA’s stated policy outcome would set preemption in stone, so that banks wouldn’t even have to seek out a case-by-case exemption (as they would under both the House and Senate regulatory reform bills). Incidentally, full federal preemption is the same thing that Comptroller of the Currency John Dugan said he would push for, in announcing the OCC’s support for a CFPA.

All of this support suddenly appearing for the CFPA seems to confirm that these groups see the writing on the wall, know that some sort of consumer protection entity will come into being, and want to throw their support to it in return for weakening its powers. Senate Banking Committee Chairman Chris Dodd (D-CT) would do well to not bow to these demands.