Instead of looking out for the hard-working American family, Republicans have brought forward an amendment that would leave consumers susceptible to the same reckless conduct that almost destroyed the American economy. It has been just two years since big banks and Wall Street executives gambled and lost trillions of dollars, all at the expense of the American consumer.
To ensure that this can never be allowed to happen again, Senate Democrats have brought forward a plan that would protect consumers by restoring accountability and transparency to Wall Street. American consumers already have strong protections against faulty appliances, contaminated food, and dangerous toys. With the creation of the Consumer Financial Protection Bureau, they’ll finally have a watchdog to oversee financial products, giving Americans confidence that there is a system in place that works for them – not just big banks on Wall Street.
The Republican Consumer Amendment (#3826) is a giant leap in the wrong direction. This Wall Street-endorsed proposal would water-down critical sections of the Financial Stability Act in a number of ways:
Bank Regulators Control Consumer Protection – Just the Status Quo. The Republican amendment establishes a Division of Consumer Protection within the FDIC. The amendment provides no safeguards to prevent the FDIC Chair or Board from overriding decisions by the Division Director. Indeed, the consumer division has no authority to adopt any rule – the FDIC Board, which is dominated by the same bank regulators that failed so miserably to prevent the current crisis, would have the authority to adopt rules (section 1022(b)(3)).
For example, the Comptroller of the Currency, who publicly opposed the Fed’s credit card rules, would, under the Shelby amendment, get to vote on future credit card rules. The head of supervision at the Fed, who failed to prevent any of the subprime abuses under Home Owners Equity Protection Act (HOEPA), would get to vote on HOEPA rules.
In other words, this amendment simply maintains the status quo – consumer protection rule-writing will still be under the full authority of the same bank regulators who routinely ignored or opposed the needs of consumers.
The Democratic bill provides for full independence in rule-writing, after significant and ongoing consultation with the bank regulators.
Worse than Status Quo for Scope of Rule-Writing and Enforcement. The Republican amendment gives the proposed consumer division authority for unfair and deceptive acts and practices under the FTC Act. However, it includes with it the incredible procedural hurdles that have effectively prevented the FTC from writing any rules in the consumer finance area since 1984. In addition, the amendment would actually prohibit the proposed consumer division from doing any rule-writing under the FTC Act for payday lenders, debt collectors, foreclosure scam operators, mortgage brokers and other non-bank consumer finance companies. As drafted, the only rules the division could write to prevent unfair or deceptive acts or practices is for consumer reporting agencies (section 1002(4)(P)).
The division would have no examination or enforcement power over any bank of any size or any of its affiliates. Some of the worst actors in the subprime mess were bank affiliates or subsidiaries, including Long Beach Mortgage, which was an affiliate of WAMU, the subject of recent Senate hearings, CitiFinancial, and others.
It could only do examinations of non-bank consumer finance companies if they “demonstrate a pattern or practice of violations” of consumer law. In other words, only after consumers have been harmed repeatedly could this consumer division do any examination of that business. The Fed recently deleted this very requirement from rules governing subprime mortgages because it hampered enforceability of the rules so severely.
Subjects Banks and Non-Banks to Assessments. The Republican amendment funds the budget of the consumer division through assessments on both banks and non-banks. In fact, it could result in banks being charged assessments to pay the costs of the new division’s regulation of the non-banks.
Moreover, any person that is subject to one of the enumerated statutes could be assessed under this bill (section 1015(a)). This means millions of people – including dentists, orthodontists, landlords, every employer that uses a credit report in the hiring process, every main street merchant that allows a customer to buy on time – would be potentially subject to assessments under this amendment.
Weakens Ability of States to Protect Consumers. The Democratic bill gives the States the authority to enforce rules issued by the new Consumer Bureau with its new authority. The Republican amendment would strip this authority.
Undermines Authority to Establish Mortgage Underwriting Standards. The Republican amendment would prohibit the consumer division from issuing any rules “that affect any underwriting standards” of deposit institutions and their affiliates (section 1022(d)). In other words, if this consumer division were in place in 2008, it would not have had the power to write the mortgage rules establishing the minimum ability to pay standards that the Fed issued. This runs directly counter to the goals so many Republicans have voiced.
Eliminates Protection Against Discrimination as an Objective. Among the objectives of the CFPB in the Democratic bill is to protect consumers from “discrimination.” The Republican amendment eliminates this objective, despite the fact that one of the statutes the division would have to enforce is the “Equal Credit Opportunity Act.” This raises serious questions as to what their goal is in this regard.