In Washington, a powerful movement is underway to kill the consumer protections and bank industry regulations that arose from the ashes of the 2008 financial crisis.
Perhaps you haven’t heard much about it yet, considering some of the other political dramas and tweets dominating the news from our nation’s capital.
But it’s time to pay attention.
Last week, the House approved a sweeping financial industry deregulation bill that guts the flawed, but necessary, 2010 Dodd-Frank law — a measure designed to crack down on the big banks and Wall Street’s bad behavior.
Backed by aggressive financial services interests including Illinois’ two largest banking associations, this proposal is a prime example of anti-regulation overkill and unvarnished industry clout.
Instead of thoughtfully fixing Dodd-Frank’s problems, the bill goes another way. It opens the door to abusive consumer lending practices and allows bankers to invest in speculative, risky deals without much fear of regulatory restraint or retaliation.
“I’ve never seen so many bad ideas jammed into one bill,” said Rep. Stephen Lynch, a Democrat from Massachusetts, during a committee hearing. Later from the House floor he labeled the legislation a “real stinker.”
As you probably guessed, Lynch voted against the measure, but it passed 233-186. Only one Republican voted against it. No Democrats backed the effort, which now heads to the Senate, where some aspects are expected to be reworked.
There are so many unsettling aspects to this 589-page calamity, dubbed the Financial Choice Act of 2017, that it is a tough chore to describe all of them.
One of the most disturbing, however, is the essential dismantling of the Consumer Financial Protection Bureau. The bill seeks to reduce the agency’s independence by radically changing how the CFPB is funded. It also would greatly curtail its ability to discipline institutions for abusive behavior.
Instead of the bureau keeping its current financing through the Federal Reserve, it would be put into annual congressional appropriations and subject to the mercy of political whims and gyrations.
An effective “cop on the beat,” the CFPB keeps a wary eye on lenders doing business with everyday people and stands apart from other banking regulators.
CFPB’s watchdog roster includes consumer banks, credit unions, credit card providers and small loan purveyors like payday and car title lenders. It also collects data on mortgage lending, which can identify redlining violations.
Last year, it fined California-based Wells Fargo Bank $100 million for its widespread, and illegal, practice of secretly opening unauthorized deposit and credit card accounts.
As we’ve seen with Wells Fargo, predatory lenders can surface anytime and anywhere.
Having an independent regulator dedicated to the multibillion-dollar business of consumer finance is an important hedge against taking advantage of people. It’s also crucial to protecting the public’s faith in the banking system, which has been rattled since the 2008 meltdown and is still recovering.
This legislation won’t help folks on Main Street but it sure lends a hand to Wall Street’s banks and investment houses.
On the bill’s chopping block is the Volcker rule, named after former Federal Reserve Chairman Paul Volcker, which insists that banks refrain from using a bank’s money to back riskier investments like derivatives, commodity futures and options.
The rule also curtails investing in hedge funds and private equity funds. These investments are typically where the big returns are found but they are also where the whopping losses can swiftly occur, notably when markets and the economy go into a tailspin and start racking up financial system casualties.
The idea behind the Volcker rule is to have a zone of safety for the banks’ depositors, and ultimately the taxpayers, who had to back up the banks in 2008 when the stock market fell off the cliff.
I support the need to amend some of Dodd-Frank, especially as it applies to regional and community banks.
These lenders need greater relief from costly regulatory oversight and red tape. They should be encouraged to make solid loans to small and midsized businesses.
When it comes to finding workable solutions to improve Dodd-Frank, I think there’s common ground between both sides of the political aisle.
This week, there’s talk that President Donald Trump’s Treasury Department will press for banking legislation that may be less sweeping than the Republican House bill’s plan.
But getting politicians to agree on a proper, middle course for anything is a rarity — even when many involved knows that’s the wisest outcome.
Instead we’re starting with this excessive House bill which, if passed into law, could end up hurting many people and unleashing the worst instincts of the banking industry.
As the congressman said, that’s a “real stinker.”