In an op-ed today, Elizabeth Warren dismantles an argument put forth by the American Bankers Association, which has argued that separating consumer protection from the kind of regulation designed to keep banks solvent -- through safety and soundness supervision -- presents a threat to the financial system. That's not, however, what they said four years ago:
In 2006, the ABA claimed to act on principle as it railed against an interagency guidance designed to exercise some modest control over subprime mortgages. It criticized the proposal for “combin[ing] safety and soundness guidance with consumer protection guidance, creating confusion that is best addressed by separating them.”
The ABA went on to argue that the “marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines.” And then: “ABA recommends that the safety and soundness provisions relating to underwriting and portfolio management be separated from the consumer protection provisions.”
...This 2006 memo illustrates the ABA's real consistency— consistent opposition to meaningful reform.
Yup. Warren goes on to explain that the ABA is mainly interested in stopping consumer protections because, by their logic, predatory behavior is necessary for banks to profit. I don't think that's true or desirable; while banks may see some profit loss under a new consumer-protection regime, ultimately they can make a profit with sustainable loans. We don't need an industry designed to trick us out of our wealth. Ultimately, the only conflict between consumer protection and prudential regulation isn't philosophical -- it's structural. An independent agency would make sure that there are clear lines of responsibility.
-- Tim Fernholz
