Obama on Consumer Financial Regs: Stay Strong

by Noam Scheiber | October 10, 2009

I was a little disconcerted a few weeks ago when I read that Barney Frank's House Financial Services Committee was weakening the proposed consumer financial regulator. As the Journal reported:

Mr. Frank, a Democrat from Massachusetts who is chairman of the House Financial Services Committee, said in a memo to Democrats on his panel that the revised proposal for a Consumer Financial Protection Agency will eliminate the Obama administration's proposed requirement that financial firms offer "plain vanilla" products to consumers, a move banks said would reduce consumer choice.

Financial firms also wouldn't have to abide by a requirement that their disclosures be "reasonable," a requirement many said was too vague and would be hard to enforce.

Which is why it's pretty heartening to hear the president say, in effect, "not so fast." Here's the key excerpt from his speech yesterday on consumer financial regulation:

This agency will have the power to make certain that consumers get information that is clear and concise -- in plain language -- so they can compare products and know exactly what they're getting themselves into.  It will ensure that banks and other firms can't hide behind these ridiculously confusing contracts -- pages and pages of fine print that nobody can figure out. 

This would seem to set up a bit of a fight between Frank and the administration, no? (And it's not just over consumer regulation. The administration seems to think Frank's approach to derivatives regulation leaves something to be desired, too. On the other hand, it doesn't look like Frank is digging in his heels. As he told Bloomberg in response to complaints about the derivatives proposal: “That’s why it’s called a discussion draft, because it brings forth people’s comments ... It’s an ongoing process.”)

Also, listening to Obama talk about this stuff, you get the impression the White House thinks picking a fight with the banks is pretty good politics:

In a financial system that's never been more complicated, it has never been more important to have a watchdog function like the one we've proposed.  And yet, predictably, a lot of the banks and big financial firms don't like the idea of a consumer agency very much.  In fact, the U.S. Chamber of Commerce is spending millions on an ad campaign to kill it.  You might have seen some of these ads -- the ones that claim that local butchers and other small businesses somehow will be harmed by this agency.  This is, of course, completely false -- and we've made clear that only businesses that offer financial services would be affected by this agency.  I don't know how many of your butchers are offering financial services.  ...

All this hasn't stopped the big financial firms and their lobbyists from mobilizing against change.  They're doing what they always do -- descending on Congress, using every bit of influence they have to maintain the status quo that has maximized their profits at the expense of American consumers, despite the fact that recently a whole bunch of those same American consumers bailed them out as a consequence of the bad decisions that they made.  And since they're worried they may not be able to kill this agency, they're trying their hardest to weaken it -- by asking for exemptions from this agency's rules and enforcement; by fighting to keep every gap and loophole they can find.

Hear, hear. I can't say I disagree with this political judgment.

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