Lawmakers, financial firms push to limit state power on consumer protection

By Renae Merle
Washington Post Staff Writer
Saturday, May 15, 2010

Some lawmakers and financial companies are making a last-minute push to roll back a provision of the Senate's financial regulation bill giving states more latitude to go after banks for violating consumer protection laws.

In seeking to amend the legislation, Sen. Tom Carper (D-Del.) is arguing that the provision, which would allow attorneys general in each state to pursue more of their own consumer protection cases, could undermine the powers of a proposed federal bureau designed to stem abuses in mortgages, credit cards and other financial products. That bureau could write and enforce consumer protection rules against nationally chartered banks with more than $10 billion in assets -- representing more than 100 of the country's largest financial firms.

The principle of federal preemption currently limits states' pursuit of cases against national banks and their subsidiaries.

But the White House, consumer advocates and state attorneys general, who had secured language in the pending legislation giving states more authority, are all redoubling their efforts, arguing that federal regulators often have not been aggressive enough.

Carper said he shares the White House's goal of establishing a new consumer protection bureau to guard against fraud and deceptive practices.

"All my amendment says is that we should make that bureau do its job. This is the cop on the beat that we need," Carper said. He warned that if state regulators are also allowed to pursue cases against national banks, this would cause confusion as consumer protection rules are interpreted differently by dozens of separate governments.

Carper's amendment, which would limit the ability of state attorneys general to enforce federal law against national banks, has more than a dozen sponsors on both sides of the aisle. It could come up for debate early next week. But Carper is also in discussions with Sen. Christopher J. Dodd (D-Conn.), the sponsor of the overall Senate legislation, and hopes to reach a compromise, according to Carper's staff. Dodd's office confirmed that discussions were ongoing.

Sen. Bob Corker (R-Tenn.), filed his own version of the same amendment Thursday and other Republican lawmakers could also introduce similar versions, congressional aides said.

Banking industry lobbyists are backing Carper's amendment. Ed Yingling, president of the American Bankers Association, said that without this change, the legislation would greatly increase "the cost of providing services to consumers and will lead to confusion. . . . In a mobile society, the law that is applicable to you will depend on where you are. Small towns could pass their own rules applicable to a loan or credit card or deposit account."

The Office of the Comptroller of the Currency, which regulates large banks and supports continued federal preemption, also backs Carper's amendment.

Consumer advocates are pushing back. This week, Elizabeth Warren, who chairs the congressional panel monitoring the bailout of the financial industry, ramped up her public criticism of efforts to alter the preemption provision in the Senate legislation. She said the language in the bill was already too weak.

Lauren K. Saunders, a managing attorney at the National Consumer Law Center, said consumers will already face difficulties under the current provision, for instance if they want to sue a national bank for violating federal law.

"We're in this crisis because have had inadequate consumer protection. Do we need to protect consumers better or do we need to protect banks that are violating the law?" Saunders said. "There is already serious compromise in this bill. Do we want to make it weaker?"

The White House, meanwhile, held a conference call with reporters Thursday to lambaste efforts to change the Senate language.

"We see a critical role for states in helping enforce consumer protections," said Diana Farrell, deputy director of the National Economic Council. "States should be able to protect their citizens as they see fit. . . . National banks need to be held accountable just like their state competitors do."

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