By Tim Duncan, Chairman of American Business Leaders for Financial Reform
Financial regulatory reform was starting to feel a lot like a political version of the movie Groundhog Day. Like Bill Murray’s character in the movie – forced inexplicably to live the same day over and over until he learned from his mistakes – the Democrats on the Senate Banking Committee have been “days away” from reaching an agreement for a bi-partisan bill with Republicans for almost three months now. Finally, it appears that the calendar will also move forward on financial reform assuming Senator Chris Dodd’s announcement today that he would introduce a bill on Monday and have a Committee vote within a week proves to be accurate.
As with health care, financial regulatory reform has been a gold mine for the lobbyists, power brokers and political fund-raisers in Washington who profit from the debates and disputes that hound our country and who are forced to look for new business when decision and resolution allow us to move forward.
But unlike the health care debate, over 80% of the American people agree that Congress needs to act now to fix what is broken in our financial system. Polls show that the vast majority of Democratic, Independents and Republican voters agree that legislation is needed to protect consumers and taxpayers from another financial crisis. The polls also show that Americans are fed up with the financial services industry’s brazen attempts to stop reform and the political cow-towing to industry lobbyists.
The debate over financial reform has gone on for over a year – we are not acting hastily. At the behest of the financial services industry, proposed legislation has been scaled back again and again – particularly with regard to consumer protection. For every concession that has been made (the elimination of uniform product requirements, exempting community banks etc.) industry lobbyists have come up with two or three new objections and moved the goal posts back another 25 yards. We have reached a point where the industry’s objections to moving down the path to sensible financial reform would be almost laughable if the potential consequences were not so serious.
For example, the latest industry argument against the Consumer Financial Protection Agency is that protecting American consumers must be subservient to the safety and soundness of financial services companies. This is one of those arguments coming out of Washington over the last few years that are hard to respond to because they are so completely groundless (think death panels). It’s like trying to debate someone who claims that elephants grow on trees.
We have numerous agencies in government who look out for the safety and well-being of Americans. The Federal Aviation Administration is charged with making sure that we fly safely and not with insuring that airlines make money. The US Food and Drug Administration tries to prevent the distribution of dangerous drugs without considering how profitable deadly drugs might be to a pharmaceutical company. Would we want the National Highway and Safety Administration telling Toyota they were off the hook because sticking accelerators helped to insure the profits of the auto industry?
What makes the financial services lobbyists’ arguments even more preposterous is that until recently they were the ones claiming that government agencies charged with regulating the safety and soundness of banks had no business or right to try and implement consumer protection. For example, in 2006 when the Federal Reserve and the FDIC began to try and reign in non-standard mortgages, the banking industry went into full attack mode. But the industry argument then was that safety and soundness must be strictly walled-off from consumer financial protection. A letter to the FDIC from the American Banking Association in March of 2006, for example, carried on for pages about the separation of safety and soundness from consumer protection with choice tidbits such as this:
The American Banking Association is concerned that these apparent changes in supervisory and enforcement policy may arise simply from trying to marry safety and soundness supervision with consumer protection supervision. The result of this marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines.
This letter was signed by Paul Smith, Senior Counsel to the American Banking Association who we can assume knows something about banking and regulatory law.
Members of Congress and lobbyists fighting against an agency to protect consumers argue that the agency would be staffed by unrestrained zealots who would be hell-bent on bringing the financial services industry to its knees. Hardly. If we have learned anything over the past few years it is that we have the opposite problem – staff members at agencies who are prone to capture by the industries they are supposed to regulate. This can occur for contemptible reasons – bribes, lucrative job offers etc. – but more often than not its simply because of more frequent contact and interactions with industry than with consumers.
In addition, anyone with a cursory understanding of administrative law is aware that no governmental regulatory agency is free to proceed will-nilly in issuing rules, no matter how apparently sensible, without first considering the costs and benefits of the same. The legislation for creating the Consumer Financial Protection Agency has and will have an explicit provision requiring the agency to weight the costs to industry and the impacts on safety and soundness of any rule it proposes.
The federal Administrative Procedures Act (APA) will apply to the Consumer Financial Protection Agency as it applies to other federal agencies. The APA permits agencies to issue rules only after consideration of information and data presented by interested parties. An affected party can challenge a rule, and courts can set a rule aside if the agency’s action was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” or “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;” or “without observance of procedure required by law. The letter of the law and Court decisions over the years have made these provisions extremely demanding.
Yes . . .yes, I know. It’s so complicated when you actually have to read laws and take time to understand a complicated issue thoroughly. But the vast majority of the American people get it – we need to act to protect consumers and the country from the kind of abuses that caused the financial crisis.