Senator Dodd To Propose Financial Reform Bill Today

As discussed in this Washington Post story, after weeks of trying to work out a bi-partisan compromise on a financial reform bill with Senator Corker of Tennessee, Senator Chris Dodd (D-CT) is going it alone. His bill would place a new consumer financial protection agency of some sort within the Federal Reserve. It would not be a stand-alone agency, as it is under the legislation passed by the House and as desired by consumer advocates and others who are not typcially viewed as consumer advocates. I have read elsewhere that, unlike the House bill, the Dodd bill will largely preempt state-law consumer protections that go beyond federal law.

Unexpected Views on the CFPA

by Jeff Sovern

A couple of reports on the Consumer Financial Protection Agency proposal that go against type:

First. 19 current and former members of the Fed's Consumer Advisory Council, including our own Alan White, have joined in a letter supporting an independent CFPA and opposing housing it in any other federal agency, including the Fed. The letter states "No agency, including the Federal Reserve, has a strong record in this regard. * * * The Federal Reserve has its hands full with responsibilities relating to safety and soundness and monetary policy."

Second, Baseline Scenario is reporting on a finding of the March 2010 survey of members of the National Association for Business Economics:

A key point of discussion in Congressional deliberations on financial services regulatory reform has been the establishment of an independent agency focused on consumer financial protection. Fifty-four percent of survey respondents feel that creating such an agency would not impair safety and soundness regulation; 25 percent believed it would be detrimental.  On a related issue, 43 percent of respondents indicate that a consumer financial protection agency would not impair access to credit while 39 percent believed it would.

If business economists--who are not known for supporting consumer protection initiatives--are not persuaded by the arguments against the CFPA, why should anyone be?

Immergluck on Federal Preemption of State Antipredatory Lending Laws

by Jeff Sovern

I've been reading Dan Immergluck's fine book, Foreclosed: High-Risk Lending, Deregulation, and the Undermining of America's Mortgage Market (2009).  At pages 177-78, he has as good a description of the competition among regulators for lenders as I've seen:

 

[S]ome state regulators have a vested interest in preempting state consumer protection laws.  The ability to preempt state law is perhaps the greatest source of value in the federal thrift and national bank charters. Regulators can gain political power based on the number and size of the banks that fall under their regulatory supervision. In some cases, a regulator's operations are funded by levying fees on the institutions they regulate.  This can encourage an agency to pursue policies that are friendly to banks--especially larger ones. If a regulator does not use its ability to allow banks under its supervision to preempt state consumer protection regulations, the bank may change its charter so that it is regulated by a more lender-friendly agency.  . . . Even if an agency's funding is not directly tied to the banking assets under its supervision, if fewer and fewer institutions fall under its supervisory umbrella, its power and relevance will be called into question.  In the long run, this could jeopardize the agency's very existence.

* * *

In 1974, Arthur Burns, chairman of the Federal Reserve Board, expressed concerns over a "competition in laxity" among the regulators . . . . Since then, there have been repeated concerns that banks "forum shop" to find the most comfortable regulator . . . . Since at least the late 1990s, this "race for the bottom" includes regulators vying to offer banks as much preemption power as they can. Demonstrating the important of preemption to the value of a charter type, a banking attorney was quoted in the American Banker regarding the OCC's preemption actions as asking "Why would you want a national charter but for the preemption authority?" * * *

[After noting that the Office of Thrift Supervision (OTS) moved before the Office of the Comptroller of the Currency (OCC) to preempt state antipredatory lending laws, Immergluck continues:] The OCC was not about to let the thrift charter gain a clear regulatory advantage over the national bank charter. [Immergluck then describes the OCC's preemption efforts]

Perhaps this explains why the federal regulators have been so aggressive in preempting state laws. It's not just a matter of ideology or even generating fees; it's a matter of survival.  Another argument for the CFPA, which of course would not need to preempt state laws to survive.

NY's lawyer advertising rules are unconstitutional

by Greg Beck

 The Second Circuit today affirmed a district court decision holding many of New York's 2007 lawyer advertising amendments unconstitutional under the First Amendment. Public Citizen challenged the rules on the ground that they served no legitimate consumer-protection function and instead served to protect established lawyers from competition and corporations from unwanted lawsuits. As the FTC has argued, such anticompetitive lawyer advertising rules ultimately harm consumers by leading to higher prices and lower quality legal services.  

Paul Krugman on Healthcare Reform

Read this.

New Restrictions on Overdraft Fees; Bank of America Opts Out

As this Washington Post article explains, under a Federal Reserve rule effective July 1, banks will be prohibited from imposing debit card overdraft fees unless the consumer opts in. So, without opting in, no overdraft purchase or ATM withdrawal will be permitted. Go here for the Fed's explanation of the rule.

Bank of America's response to the new rule is simple: the heck with it. We are just gonna ban overdrafts entirely for debit card purchases. And for ATM withdrawals, before overdrafting, the consumer will have to agree to pay BOA $35. Watch for other banks to follow suit.

New NCLC Practice Tools

1. The 2010 Edition of Surviving Debt (494 pp.) ($20) due from the printers on March 19, is our most popular book. Geared for consumers, counselors, paralegals, and even attorneys new to consumer  law, experienced attorneys regularly take advantage of our $8 bulk price to order 100 books at a time as handouts for clients and others.  For more, go to www.consumerlaw.org/shop

 

 2 .  Free webinars:  "Mortgage Assistance Relief Scams:  What Advocates Should Know & Updates on Regulation" on March 10th , "Claiming and Collecting Attorneys' Fees" hosted by NSCLC on March 16,  and "Auto Databases: Who knows where that car has been?" on March 18th.  Contact jhiemenz@nclc.org for these and future webinars.  Go to www.consumerlaw.org/issues/seniors_initiative/webinar.shtml for the 2010 schedule and free downloads of past webinars. 

 

3. Help on New HAMP litigation theory:  NCLC  with co-counsel has just brought four class action s on behalf of Massachusetts homeowners challenging the failure of Wells Fargo Bank, Bank of America, Indimac, and JP Morgan Chase  to honor  HAMP agreements to convert temporary mortgage modifications into permanent ones. To discuss similar actions in other states, contact NCLC's litigation team: Stuart,  srossman@nclc.org, Charles, cdelbaum@nclc.org or Arielle ariellecohen@nclc.org, in our Boston office.

 

4 . Hot Topics in The latest NCLC REPORTS:  Bankruptcy & Foreclosures Ed. (Jan./Feb. 2010): how to get information on HAMP denials, Supreme Court to decide disposable income case,  d ealing with "phantom" income by resetting CMI. Deceptive Practices & Warranties Ed. (Jan./Feb. 2010): representing loan mod scam victims, new ideas for revoking acceptance against manufacturers,   changes to Federal Rules of Procedure re timing.     

5.  Free client handout re the Credit CARD Act, that took effect Feb. 22 : http://www.consumerlaw.org/issues/credit_cards/content/CARD-AdviceforConsumers0210.pdf

 

The Revolving Door Between Auto Regulators and The Auto Industry

Does the close relationship between federal auto regulators and auto industry insiders lead to lax regulation? Does it cause regulators to ignore or react too slowly to safety hazards?  This article in today's Washington Post documents the revolving door and, to a limited degree, explores these questions. Here are a couple paragraphs from the Post article to give you a flavor:

A Washington Post analysis shows that as many as 33 former National Highway Traffic Safety Administration employees and Transportation Department appointees left those jobs in recent years and now work for automakers as lawyers, consultants and lobbyists and in other jobs that deal with government safety probes, recalls and regulations.

The reach of these former agency employees is broad. They are on staff rosters for every major automaker and every major automotive trade group, and they appear as expert witnesses and legal counsel for the industry in major class-action lawsuits over auto safety.

Jeff Gelles Column on Why We Need an Independent CFPA

Here. Tellingly, Gelles describes how a troublesome credit card practice that elicited only an advisory letter from OCC, that as Gelles puts it, "told card issuers to do a better job of warning customers they could be shafted," was later outlawed by Congress in the Credit CARD Act, further demonstrating the gulf between Congress and existing bank regulators.

The Latest on Financial Reform

First we hear that the Senate financial reform bill will kill off the idea of an independent Consumer Financial Protection Agency and instead create a new bureau or division within the Federal Reserve (or is it in the Treasury Department?). And yesterday, the Washington Post reported that another key provision of the bill requiring brokers and insurance agents to act as fiduciaries (that is, in the best interest of their clients) is likely to be stripped after lobbying by the brokerage industry. That provision will probably be replaced by one requiring the Securities and Exchange Commission to study the issue.