Continuing the theme of the press focusing on the lobbying efforts of the financial industry to keep the status quo, The New York Times reports today that the banks are gearing up to fight the new consumer financial-protection agency—hard.
The Times writes that killing the agency is now the financial industry’s top goal, which is not that surprising since most everything else in Obama’s plan is hardly onerous to the industry that shattered the economy. This comes on the heels of the release of Obama’s plan for the agency, which seems to have broad political support.
But industry executives vowed on Tuesday to fight Mr. Obama’s plan with everything they have, even though banks are still heavily dependent on many taxpayer-supported loans and loan guarantees to get through the crisis.
“It’s going to be a huge fight,” said Edward L. Yingling, president of the American Bankers Association. “This agency would have broad powers that go beyond every consumer law that has ever been enacted.”
Of course, the banks know they’re not going to “kill” the agency—although they’ll pray for that outside chance. What they want to do is water its mission down until its something like a toothless regulator that won’t be able to affect them so much. I wouldn’t bet against them on that one. They’ve got cash, after all, which the NYT euphemistically calls “close ties”:
Opponents include JPMorgan Chase and Wells Fargo as well as thousands of regional and local banks that have close ties to lawmakers in every part of the country. But the opposition could also include countless mortgage lenders and independent mortgage brokers.
Why anyone would listen to the mortgage folks is beyond me. Oh wait.
The Times pulls an unintentionally funny quote from a banks mouthpiece:
“We know the optics are bad,” said Scott Talbott, vice president for government affairs for the Financial Services Roundtable, a trade association in Washington. “If you are against a consumer regulatory agency, then everybody will say you’re against consumer regulation.”
I can’t imagine why opposing a consumer regulator would make people think you oppose consumer regulation. That’s a stunning leap of logic “everybody” is making!
The industry prefers its own regulators, which it’s spent decades co-opting, and which have been enablers of financial industry interests (or so they thought) in recent years rather than arms-length overseers in the public interest.
Here’s what the industry is so scared of:
It would give the new agency marching orders to set standards for traditional mortgages, and the agency would have the authority to demand that lenders offer those kinds of loans or give consumers the chance to opt out of riskier products.
It would also give the new agency the power to restrict or prohibit mortgages that come with hidden fees and steep penalties for borrowers who pay the loan off early. It would also be empowered to interpret and enforce the new credit card law that Congress passed last month, aimed at restricting banks from arbitrarily raising interest rates.
It would also have examiners, much like existing bank regulatory agencies, who would have the authority to go into specific institutions, issue subpoenas and scrutinize their practices, demand changes and seek penalties.
No more devious loans that trick consumers into forking over billions of dollars in fees and penalties. No more exploding mortgages. No more putting prime borrowers in subprime loans. No more lending people thousands of dollars and then doubling their interest rates overnight. At least I’d hope this agency would mean no more of that stuff. The Times just says it would “be empowered” to stop these things. Regulators of all kinds were empowered to stop the craziness that went on during the bubble, but they didn’t.
A key thing to watch on this new consumer agency will be who staffs it. If its officials come from the revolving door of the financial industry, it’ll be more or less business as usual. If they’re outsiders, then it will have a real chance of changing how the business operates.
The obvious choice would be an outsider like Harvard professor, author and Congressional Oversight Panel chair (and NPR punching bag) Elizabeth Warren, who after all came up with the idea. Wall Street would fight that nomination to the death, though, and as we’ve seen, the press probably wouldn’t favor it too much.
Don’t hold your breath on that one.
The key point to remember here is that had their been a consumer-protection agency, we would have had a critical bulwark against the unethical and often downright criminal lending that ran rampant from 2004 to 2007. That doesn’t mean the regulator would have stopped the conditions on the ground, especially since its mandate from a Bush administration would have been to pretty much get out of the way. But it surely would have had a moderating effect on the predatory lending that went wild. That would have put a damper on the bubble and its aftermath would have been less of a disaster.
If anything’s been made clear from this crash it’s that the banks don’t care a whit about their customers and are so myopic that they don’t understand that overloading them with debt for their own short-term profits makes them unlikely to pay them off in the medium term.
Or as a consumer advocate says:
“It’s obvious from the history of the last 20 years that the regulators never understood that protecting consumers is also a way of ensuring the safety and soundness of financial institutions,” said John Taylor, president of the National Community Reinvestment Coalition.
Keep it up.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.