There are two consumer protection amendments getting serious attention on the Senate floor this week, one of them positive, one of them incredibly destructive. Both revolve around the concept of “preemption”—the ability of federal regulators to block states from enforcing laws aginst banks that operate within their borders. Over the past decade, state regulators tried to crack down on subprime outrages, but federal regulators stepped in to protect the megabanks. If we want to establish a fair financial system, we have to empower states to take action against abusive banks.
That’s what makes a new amendment from Sen. Tom Carper, D-Del., so dangerous. Carper’s plan is to ban states from enforcing their own laws against big national banks like Wells Fargo, Citigroup, and Bank of America. This is an overt attempt to take cops off the beat and allow banks to get away with outright abuses. While doing lipservice to “strong consumer protection,” Sens. Bob Corker, R-Tenn., John Ensign, R-Nev., D-Mark Warner, D-Va., Tim Johnson, D-S.D., Ben Nelson, D-Neb., and Evan Bayh, D-Ind., have all gone to bat for America’s largest banks.
This is the kind of amendment that can actually sink the bill if adopted. For years, federal bank regulators at the Office of Comptroller of the Currency (OCC) asserted broad powers to preempt state laws, and courts generally backed them. But in 2009, the Supreme Court reversed those decisions, giving states the ability to go after big banks through the court system. Carper’s amendment wouldn’t just institutionalize a destructive status quo—it would actively deregulate, further empowering banks to take advantage of the public.
Right now, the head of the OCC is a man named John Dugan. He’s an appointee of George W. Bush who spent years working as a bank lobbyist before taking the regulatory job in 2005. He’s been leading the charge against consumers for his entire time in office, and is still pressing the attack today. At the most recent meeting of the bank lobby in Washington, D.C., he gave a speech opposing the very idea of consumer protection regulation, arguing that regulators should instead focus on ensuring bank profitability.
This dual focus on profitability and consumer protection is one reason why we need a new federal regulator that only worries about consumer issues. President Barack Obama put forward a great proposal to do just that in June of 2009. But Carper isn’t just trying to defang state regulators, he’s also trying to gut Obama’s plan. Under the Carper amendment, the existing federal regulators at the OCC and the Federal Reserve would have sole authority to enforce regulations over 98 percent of U.S. banks, dramatically undercutting the new consumer regulator’s ability to avert problems. This isn’t an attempt to streamline the system. It’s an attempt to let banks continue the consumer swindles of the past decade.
Sometimes federal regulators do a good job. But sometimes, foxes like John Dugan end up in charge of the henhouse. When that happens, we need to have other regulators out there to crack down on abuse. In any other industry, companies have to obey state laws when they operate within their borders—as Elizabeth Warren has noted, no federal law preempts states from enforcing their own laws against Wal-Mart. Wall Street doesn’t deserve special treatment.
Empowering states does not mean tying the hands of federal regulators who want to take action. Today, federal rules still serve as a regulatory “floor”—a baseline that state law cannot slip below. But if states want to pass stricter laws, they can, and people like John Dugan cannot stop them.
Fortunately, other senators are actually trying to put more cops on the beat, instead of removing them. Sen. Sheldon Whitehouse, D-R.I., has written a very productive amendment that would empower states to crack down on abusive interest rates. In 1978, the Supreme Court ruled that states cannot impose interest-rate caps on national banks operating within their borders. Whitehouse would restore that power, giving states the ability to go on the offensive against unfair practices across many different kinds of consumer abuses, from payday lending to mortgages.
Consumer advocacy groups are livid about the Carper amendment, and their intense pushback may keep the amendment from coming to a vote directly. So Carper is currently in negotiations with Sen. Chris Dodd, D-Conn., about including Carper’s efforts in Dodd’s “manager’s amendment.” It’s extremely difficult for Senators to vote against the manager’s amendment, because it will include hundreds of small tweaks to different sections. It’s essentially a conglomeration of all the deals Dodd has cut with other Senators behind closed doors.
As Chairman of the Senate Banking Committee, Dodd has understood how preemption works for years. He knows that the Carper amendment is an inexcusable giveaway to big banks at the expense of citizens all over the country. But we’ve already seen Dodd water-down consumer protection plans at the Banking Committee level, supposedly to build “bipartisan” support (although no Republicans actually voted for the reform bill in the Banking Committee). There’s no need for such concessions now. Democrats have already broken one Republican filibuster of Wall Street reform—most Senators are going to have to vote in favor of the overhaul no matter what is actually in it. Don’t let Dodd or Congress attack consumers to just to make some bigwig bankers happy.