Some Thoughts About the Dodd CFPA Compromise

by Jeff Sovern

Reports continue to emerge that Senator Dodd has proposed a compromise on the Consumer Financial Protection Agency.  Here. for example, is an excerpt from a Times report:

Rather than a stand-alone agency, Mr. Dodd proposed creating a Bureau of Financial Protection within the Treasury Department. The bureau would have an independent director, appointed by the president, and a budget financed by fees from large banks and other lenders.

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 * * * [T]he Dodd proposal would require the bureau to consult with other regulators before issuing rules, and to make public any objections raised by those regulators, along with an explanation of how the bureau addressed the concerns or why it went ahead anyway.

The other regulators also could appeal the bureau’s proposed rules to a new interagency council, led by the Treasury secretary, whose job would be to detect risks to the financial system. The council could veto the rule or send it back to the bureau to be rewritten.

The proposal apparently would also reduce the agency's enforcement powers.  The article quotes consumer advocates as opposing the changes from the House bill.

My own view is that an independent agency would be far better than an agency housed within the Treasury Department.  The Treasury Department already houses the Office of the Comptroller of the Currency, an agency that has issued modest consumer protection rules, but that is more noteworthy for running roughshod over stronger consumer protection attempts by others. Thus, when states enacted predatory lending statutes, OCC declared them preempted.  Similarly, last summer the Supreme Court, in the Cuomo case, rejected the OCC's effort to prevent the New York State Attorney General's Office from investigating whether lenders had violated New York's credit discrimination laws. In short, the Treasury Department has not proved hospitable to consumer protection.

Why is that?  Look at the Treasury secretaries themselves. They are far more likely to have a background in banking than in consumer protection.  Treasury seems to be influenced far more by banking interests than consumer protection concerns.  The problem with housing a consumer protection agency within Treasury mirrors the problem of housing consumer protection efforts within the Federal Reserve. In both cases, consumer protection efforts tend to be subordinated to other priorities.  The result was the financial crisis.  Why would we want to repeat the mistakes of the past?

If anything, the structure of this proposal seems intended to emphasize that consumer protection is subordinate to other concerns.  The new interagency council would have the power to veto consumer protection rules.  That council would be headed by the Treasury Secretary.  So we have an agency within a department that has frustrated consumer protection efforts with a structure that gives others a veto over consumer protection efforts. 

Really, how much better is this than what we already have?  Better than nothing perhaps, but what we need is an agency that would have the inclination and ability to prevent the next financial crisis.  Would this new agency have that inclination?  Well, did the Treasury Department try to prevent the last one?

Comments

[BenchCraft]

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[Cindy]

This is why I don't get excited about legislation that purports to rein in irresponsible companies; it always gets watered down and sometimes even starts out as more of a ruse or a way to placate consumers into a false sense of security. I happily sign online petitions, write letters, etc, to support REAL reform and accountability but always add a big BUT...but do not let this become another toothless agency, another fox guarding the henhouse.

What taught me that special laws and agencies often fail was a construction defect case. Turned out I was probably lucky the state I lived in at the time had no specific laws addressing it, so I was free to use existing civil law regarding damages, etc. I've seen that homeowners in states with licensing, (or worse, the builder promoted 'right to repair' laws), had to jump thru many more hoops than I did, and my case lasted long enough without these hindrances thate serve mostly to protect bad builders. I saw the abyssmal failure of the TRCC in TX, an agency created for and by builders that was supposed to protect consumers but didn't.

And I suspected that a consumer protection agency designed to rein in financial abuses would turn out equally corrupted or useless. I do not believe in compromise on these issues. There are often laws on the books that would work if they were enforced. But the REAL way to stop corporate corruption is consumer education. We need to wean Americans off their mindless blind faith in corporate America, because as long as they keep the concept of "big trusted companies" in mind, they will keep falling for toxic loans, tort reform lies, etc. Find a way to reach consumers with the FACTS and maybe they won't be so gullible. If they stopped buying from these co's they could put them out of business, bailouts or not.