Chris Dodd and Barney Frank take a lot of flack from all sides. But, they rarely get credit when credit is due. The Consumer Federation of America (CFA) gives them kudos in a letter they sent today:
Thank you for your pro-consumer, pro-investor vote on the landmark Dodd-Frank financial regulatory reform bill. This historic legislation provides a sweeping overhaul of federal financial regulations that should help protect consumers, Main Street investors, and the economy for decades to come.
CFA is particularly supportive of the creation of the Consumer Financial Protection Bureau to guard against unfair, deceptive and abusive practices when consumers take out a loan, use a credit card, or get a mortgage. The Dodd-Frank bill includes provisions that are crucial to an effective bureau, such as making the CFPB autonomous, with independent funding, and led by a single director. The bill also allows states to go beyond the CFPB’s rules to rein in a local problem prior to it erupting into a national disaster.
The new restrictions on mortgage lending are also important. Had these provisions been in place years ago, we may not have seen the crisis in mortgage lending that we are still dealing with today. We are particularly supportive of the restrictions on prepayment penalties on mortgages, a requirement that mortgage lenders ensure that home loans are affordable to the borrower, and a prohibition on steering consumers into unaffordable loans.
For years, CFA has promoted the need for brokers to have the same fiduciary duty requirement to work in the best interest of their customers when they give investment advice as Investment Advisers have. The Dodd-Frank bill gives the Securities and Exchange Commission the clear authority to write rules to this effect. Other important provisions for Main Street investors include: creation of a powerful new Investor Advocate Office within the SEC, elimination or limits on the use of pre-dispute binding arbitration clauses in brokerage and investment adviser contracts, improved disclosures, reform of broker-dealer compensation practices, and strengthened SEC enforcement tools.
Finally, CFA is supportive of the provisions that strengthen regulatory oversight of ratings agencies, increase rating agency accountability, and improve rating transparency. The Dodd-Frank bill also includes strong provisions on the key issues of moving the majority of clearable swaps into central clearing, requiring exchange trading, increasing capital and margin requirements, and other measures to improve the stability, transparency, and regulatory oversight of the derivatives market.
For the legislation to achieve its goals, regulators will need to provide the kind of vigorous oversight of the financial services industry that was lacking in the years leading up to the crisis. We look forward to working with them, and with you, to ensure that this legislation is implemented so that it fulfills its mission of helping consumers, thereby strengthening our entire economy.
While there is certainly more work that needs to be done, Wall Street Reform is an historic piece of legislation that will protect American consumers for generations to come.
Paul Krugman is worried. He's worried that Chris Dodd's financial regulatory reform legislation isn't strong enough and he worries that it will only get worse as the administration panders for Republican votes. Krugman explains:
The White House is confident that a financial regulatory reform bill will soon pass the Senate. I’m not so sure, given the opposition of Republican leaders to any real reform. But in any case, how good is the legislation on the table, the bill put together by Senator Chris Dodd of Connecticut?
Not good enough. It’s a good-faith effort to do what needs to be done, but it would create a system highly dependent on the wisdom and good intentions of government officials. And as the history of the last decade demonstrates, trusting in the quality of officials can be dangerous to the economy’s health.
Krugman concludes that the legislation needs explicit rules, but, fears that the bill will be scaled back:
So what the legislation needs are explicit rules, rules that would force action even by regulators who don’t especially want to do their jobs. There should, for example, be a preset maximum level of allowable leverage — the financial reform that has already passed the House sets this at 15 to 1, and the Senate should follow suit. There should be hard rules determining when regulators have to seize a troubled financial firm. There should be no-exception rules requiring that complex financial derivatives be traded transparently. And so on.
I know that getting such things into the bill would be hard politically: as financial reform legislation moves to the floor of the Senate, there will be pressure to make it weaker, not stronger, in the hope of attracting Republican votes. But I would urge Senate leaders and the Obama administration not to settle for a weak bill, just so that they can claim to have passed financial reform. We need reform with a fighting chance of actually working.
There's still time to make the bill even stronger. Now is the time to be strong and stand up to Wall Street. Let's make it clear who is on the side of Wall Street and who is on the side of Main Street.
On Thursday, dozens of financial reform advocacy groups sent a letter to Senator Chris Dodd (D-CT), the Chairman of the Senate Banking Committee, thanking him for championing the Consumer Financial Protection Agency (CFPA) and urged the Senator not to bow to Wall Street's pressure and water down reform. The letter reads:
The undersigned consumer, civil rights, labor and community organizations would like to thank you for your strong efforts to enact an independent Consumer Financial Protection Agency. Existing bank regulators utterly failed to protect consumers from abusive lending practices in the marketplace because they were not independent of the lenders they regulated and because they subordinated consumer protection concerns to a dangerously shortsighted focus on the near-term profitability of these institutions. We strongly support the CFPA because it will transform this failed regulatory approach by creating an independent agency focused on protecting consumers from deceptive, unfair or discriminatory financial practices. Correspondingly, we will oppose any CFPA proposal that undermines the ability of the agency to make and implement independent decisions about the needs of consumers, such as placing the agency within a new prudential regulator. In fact, putting the CFPA under the OCC or a new, more consolidated national bank regulator would be worse for consumers than the existing regulatory system.
It is dismaying that some are proposing to give the same prudential regulators whose failures harmed millions of American families and brought our economy to the brink of collapse even more power to make decisions about consumer protection. The OCC, for example, not only failed to stop widespread mortgage and credit card lending abuses by banks it regulated, it actually opposed consumer protection measures to curb these abuses. In August of 2008, Comptroller of the Currency John Dugan wrote the Federal Reserve Board to propose significantly weakening core elements of a proposed rule to address unfair and deceptive credit card lending practices. Dugan said that the first reason he wanted to eviscerate these provisions was because they "raise safety and soundness concerns." Even the Federal Reserve Board rejected the OCC’s anti-consumer views and finalized a rule that Congress then improved when it passed the Credit CARD Act.
It would be equally impossible to assure the necessary degree of independence for a CFPA if its rules were effectively subject to veto by a political appointee such as the Secretary of the Treasury, at the behest of a banking regulator. The models for “independent” agencies within the Treasury – the OCC and the OTS – have statutory guarantees of autonomy from the Secretary in rule-making and enforcement, in addition to other attributes necessary for independence, such as independent funding.
We can think of no other circumstance in which an agency charged with protecting the American public can have its actions vetoed because of a challenge by another agency focused on the priorities or profitability of a regulated industry. Though the auto industry is important to the American economy, we do not let the Commerce Department attempt to override NHTSA's auto safety rules or vehicle emissions standards. We would not give another agency the legal authority to get a FAA airline safety rule or EPA clean water regulation vetoed because of the impact on industry. We do not let the Small Business Administration trigger a legal process to OSHA's worker safety rules because they might eat into business profitability.
Given the very poor consumer protection track record and lack of independence from the institutions it regulates, neither the OCC nor its successor should have the ability to oversee or, in effect, veto decisions by a CFPA. It should also be prevented from trying to use phony claims regarding "safety and soundness" to slow or stop consumer protection measures.
The evidence is clear that strong consumer protection measures will also protect the long-term stability of financial institutions, even if these measures impinge on short-term profitability. For example, if the OCC and other banking agencies had paid more attention to the impact of abusive subprime mortgage loans on consumers, it would have better protected the solidity of the institutions it regulated as well. It is no longer appropriate to allow prudential regulators to narrowly (and improperly) focus on the short term profitability of the institutions they regulate by rejecting measures that are in the best interest of consumers.
Our organizations strongly urge you to reject all proposals to allow prudential regulators to oversee or veto legitimate consumer protection decisions by an independent regulatory agency. Once again, we commend you for your strong support of the CFPA and look forward to working with you to achieve this crucial goal.
The letter was signed by a number of advocacy organizations calling for responsible reform including Americans for Financial Reform, AFL-CIO, California Reinvestment Coalition, Center for Responsible Lending, Ctw Investment Group, Consumer Action, Consumer Federation of America, Consumer Union, Consumer Watchdog, Demos, Empire Justice, International Brotherhood of Teamsters, National Association of Consumer Advocates, National Community Reinvestment Coalition, National Consumer League, National Consumer Law Center (on behalf of its low income clients), National Fair Housing Alliance, National People's Action, New Jersey Citizen Action, Public Citizen, Sargent Shriver Center on Poverty Law, SEIU, The Leadership Conference on Civil and Human Rights, U.S. PIRG and the Western States Center.
Senator Richard Shelby is making a play to be king of the obstructionists in the Senate. First, he holds up 70 nominees because he wants more pork for his state. And, now, he's doing Wall Street's bidding and trying to scuttle real financial regulatory reform:
HuffPost asked Shelby if Dodd had confirmed to him on the floor that he was moving ahead with an independent Consumer Finance Protection Agency.
"Well, that's been our biggest split, okay, and it's still at impasse there," Shelby said. "But we're talking."
Yup, that's right - Shelby is holding up financial regulatory reform because he doesn't think there should be an organization whose mandate will be to protect consumers. It's been over a year since the collapse that brought about the worst economic crisis since the Great Depression and, so far, no meaningful reforms have been passed to make sure it doesn't happen again. This is our opportunity to pass reform and all Shelby and his Republican pals can do is say no to meaningful reforms.