Consumer advocates call for tough protections in final regulation law
Saturday, June 5, 2010
As lawmakers in the House and the Senate iron out differences between their far-reaching new financial regulations, consumer advocates are waging a final, fervent push to safeguard the legislation and bolster key provisions.
"The recent passage of Wall Street reform was a historic event and a victory for ordinary working Americans against the abuses of the big banks on Wall Street," Nancy Zirkin, executive vice president of the Leadership Conference on Civil and Human Rights and a member of Americans for Financial Reform, said Friday.
Still, she told reporters, "the final legislation can really be strengthened even more" when lawmakers resolve the language in their bills in a conference committee.
At the top of the advocates' list: consumer protections.
The Senate bill, which passed last month, would create a powerful, independent new agency within the Federal Reserve that is intended to protect borrowers from abuses by lenders. The House bill, which passed in December, would create a stand-alone agency with much the same autonomy, though certain groups such as auto dealers and real estate brokers would be exempt from oversight.
Harvard law professor Elizabeth Warren, a leading advocate for a consumer watchdog, praised the Senate and House measures Friday but said "neither bill is perfect." She said lawmakers need to resist efforts to remove certain groups from new consumer regulations and must ensure that the new agency can enforce the rules it writes, including the ability to partner with state attorneys general.
"If we get a strong agency, the agency will make a real difference for families," Warren said, "by making credit contracts comprehensible again, and by weeding out the tricks and traps that have distorted the true cost of credit and the risks associated with many credit products."
Another key issue is the vast market for financial derivatives. A controversial provision in the Senate bill would force big banks to spin off their lucrative swaps desks. The provision, sponsored by Sen. Blanche Lincoln (D-Ark.), is not in the House legislation, and has faced opposition from administration officials, top lawmakers from both parties and Wall Street. But consumer groups have stood by Lincoln's effort to separate risky derivatives trading from federally insured banks.
"It was, in our view, a major contributor to what went wrong in our financial system -- that vast risks involved in multitrillion-dollar derivatives books were embedded within larger financial institutions," said Damon Silvers, director of policy and special counsel for the AFL-CIO. Retaining Lincoln's language, he said, "from the perspective of the public interest, is critical."
This week, National Economic Council Director Lawrence H. Summers and his deputy, Diana Farrell, met with representatives from consumer and public interest groups. Zirkin, who attended the meeting, said the two policymakers "well understand that this bill isn't perfect, and they will work with us to make it better."
Those efforts won't take place in a vacuum. The financial industry is also hard at work to shape the final legislation. Lobbyists have pushed back hard against Lincoln's measure, saying it could wound U.S. competitiveness and hurt Main Street companies. They also have targeted other issues, such as a provision that would prohibit banks from trading on their own accounts, an activity known as proprietary trading.
Senate leaders last week appointed seven Democrats and five Republicans to serve on the conference committee. The House has not yet assigned all of its conferees.
Rep. Barney Frank (D-Mass.), who will be the chairman, is expected to convene the committee next week, and lawmakers will use the Senate bill as the base text. Frank has said he hopes to have a final bill on President Obama's desk by July 4.