Who's Leading the Fight Against Consumer Financial Regulation?

The financial crisis has taught people to be skeptical of lenders. The crash of 2008 came after borrowers, half of whom qualified for safe, prime loans, were steered instead toward sub-prime loans that lenders promised they could pay back. Mortgage lenders weren't even checking to see if people had jobs before offering loans that would bankrupt them. After considering real-estate lending alongside deceptive credit-card practices, predatory payday loans, and multiplying bank fees, it's hard to argue that consumers have been adequately protected from the financial sector.

In response, the Obama administration, along with Democrats in Congress, has proposed the creation of a Consumer Financial Protection Agency (CFPA), which would house all federal consumer financial regulation in one new office. The CFPA would make sure lenders act transparently and don't take advantage of consumers, just as the Consumer Product Safety Commission makes sure the appliances you buy aren't going to catch fire and the Food and Drug Administration ensures there is no poison in your breakfast cereal. For instance, the CFPA would require lenders to provide "plain vanilla" financial products to consumers -- loans that are certified as safe and understandable -- before laying out riskier options.

Business interests oppose the plan, mainly because it would curtail highly profitable practices, like sub-prime loans. But that's not what they say publicly. The Chamber of Commerce, the business community's umbrella group in Washington, recently organized a conference call coordinating some 200 representatives of groups who oppose the legislation. The call doesn't mention any of the serious problems that led to the financial crisis or why consumer regulation is important. Instead, it follows a "death panel" approach to political discussion: Scare the hell out of everyone.

The CFPA's regulation would primarily affect consumer lenders -- be they banks, payday lenders, check cashers, credit unions, or mortgage lenders -- not most regular businesses. But Chamber is painting the new office as an "unprecedented expansion of government intervention" that will have expensive consequences for almost everyone. Their rhetoric would recall the Chamber's opposition to the actually unprecedented government bank rescues, except the Chamber didn't oppose those.

On the call, the Chamber's staff suggested that the CFPA will determine what businesses can say to customers (in reality, only that you can't lie to them), that it would regulate "anyone who provides services to a financial firm" (it won't), and that the CFPA would represent "a new tax" on regulated businesses. The last is particularly egregious -- while the CFPA's funding source hasn't yet been decided, it's likely that it will simply be with appropriated funds.

The Chamber's coordinated lobbying effort will be matched with a public-relations campaign. The Wall Street Journal reported yesterday that the Chamber will spend some $2 million on advertisements that feature a butcher who would supposedly be regulated by the bill. Steve Adamske, a spokesman for Rep. Barney Frank, the main House proponent of the bill, says that the final legislation will focus on pernicious lenders, not businesses that extend credit as part of their customer service.

"If you're a drycleaner and you are doing some kind of layaway plan, that's a lot different from someone who is a predatory lender, giving out loans to people who can't afford them," Adamske says. 

All of the scare tactics are for a simple purpose: Getting business and trade organizations, which might benefit from customers who aren't going bankrupt and an economy that's not tanking, and the average citizens who would benefit from the bill to complain about the CFPA to members of Congress.

"We want to make sure that we hold all the Republicans and are able to influence enough Democrats to have a working majority to kill this thing outright or modify it to the point where it's palatable to the business community," Jason Matthews, the Chamber's director of congressional affairs, told the callers.

Ryan McKee, a senior director at the Chamber's Center for Capital Markets, was even more direct in response to a question from an caller: "We're fundamentally trying to kill this," she said.

With a strong bill likely to come from the House, the Chamber's legislative strategy is focused on the Senate, where Sen. Chris Dodd of Conneticut has decided to continue on as chair of the Banking Committee rather than taking leadership of the Senate Health, Education, Labor and Pension Committee, where he was next in line following the death of his friend, Sen. Ted Kennedy.

Dodd isn't generally considered the strongest ally by consumer advocates, but they agree with the Chamber's assessment of the senator's position: Dodd is facing a tough 2010 re-election campaign and must take action to separate himself from the unpopular financial sector (many firms are headquartered in Connecticut) to avoid the electorate's ire. That means stronger regulatory reform -- especially now that Dodd is staying on. Consumer advocates worried that, had Dodd departed, South Dakota's Tim Johnson, an ally of the financial industry, might have led the committee in a more business-friendly direction.

Nonetheless, the Chamber is lobbying senators whom Matthews termed on the call "the usual suspects over there on Senate Banking." This includes Johnson -- "for sure," in Matthews' words -- Mark Warner of Virginia, Michael Bennett of Colorado, and Jon Tester of Montana. They are all Democrats the Chamber expects will choose a more business-friendly approach over consumer interests.

Still, there is confidence that the bill can pass.

"Look at the vote in the Senate and the House when it came to ending the ridiculous industry practices on credit cards," Adamske says, referencing a major credit-card reform bill that passed in the spring with strong bipartisan majorities. "The American people are absolutely fed up with credit-card companies."

"It's really important to have a strong consumer regulation," Sen. Chuck Schumer, a banking committee member, told the Prospect when asked about the consumer regulation's chances in the Senate. "Look, just what you see with credit cards, OK? You plug one loophole and they find another. You need an agency with broad power that can go in and stop things from happening before they start." The Chamber of Commerce, he says bluntly, "doesn't have the public on their side."

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