When reform doesn't equal change
This looks to be an important week for the fate of financial regulatory reform. A stand-alone Consumer Financial Protection Agency has virtually been assassinated by a strong lobbying effort. So, what are we left with?
Remember, the House passed a bill that included an independent CFPA, tasked with the sole mission of protecting consumers from abuses by banks and other financial companies.
But by most accounts, there is no way a stand-alone CFPA is getting through the Senate. Democrat Chris Dodd has proposed an alternative -- creating a consumer protection division at the Treasury. But that too has been rejected by Senate Republicans like Tennessee's Bob Corker:
Committee Republicans rejected Dodd's proposal because it split consumer protection from the safety-and-soundness responsibility of bank regulators, according to a Senate aide who declined to be identified because the talks are private.
"It is important for the CFPA to be located in an agency with substantial safety-and-soundness responsibilities so that these goals work together rather than at cross purposes," said Oliver Ireland, former Federal Reserve associate general counsel and now partner at law firm Morrison & Foerster LLP in Washington. "This probably means it should not be at Treasury."
Where should it be then? You guessed it -- at the Federal Reserve. Paul Krugman says that would be the worst possible outcome:
Some have argued that the job of protecting consumers can and should be done either by the Fed or -- as in one compromise that at this point seems unlikely -- by a unit within the Treasury Department. But remember, not that long ago Mr. Greenspan was Fed chairman and John Snow was Treasury secretary. Case closed. The only way consumers will be protected under future antiregulation administrations -- and believe me, given the power of the financial lobby, there will be such administrations -- is if there's an agency whose whole reason for being is to police bank abuses.
Krugman says he'd rather have no reform at all than a weak bill. Consumer groups say they were simply outmatched on this one. Make note of the big business lobby's central argument against an independent CFPA -- that it would hurt small business. Reuters blogger Felix Salmon is also about ready to throw in the towel on meaningful reform by Congress:
At this point, I'm beginning to think that Dodd should accept whatever Corker would find acceptable -- probably just a charge for existing regulators that they keep an eye on consumer protection as well. Then Elizabeth Warren should team up with the Center for Responsible Lending to create a Consumer Financial Protection Agency entirely unaffiliated with the government, which would give out "consumer friendly" badges for financial institutions which meet its standards, and which would have a high-profile bully pulpit from which to name and shame those institutions which rip off their customers. It might not have any teeth, but in that respect it wouldn't differ markedly from whatever we're going to end up with from Dodd and Corker.
Is that acceptable to you as a consumer?