Remember how back in 2008, the Bush administration shepherded a $700 billion bank bailout through Congress? Well, the House of Representatives voted last month to rescue banks yet again. And if its bill, the Financial Choice Act, becomes law, ordinary Americans may pay a bigger price than they did for the 2008 bailout.
First, some recent history: While financial institutions perform important functions for our economy, they have also been stumbling through scandal after scandal. After bad lending led to the Great Recession and the bailout, American International Group employees received $165 million in bonuses even as their company required a $170 billion bailout. Then there’s the LIBOR rate-rigging scandal; the London whale; robosigning and foreclosure frauds; and Wells Fargo opening millions of sham accounts.
So you might think Congress would be done rescuing banks. Not necessarily. The House recently passed the Financial Choice Act to do just that, drawing an enthusiastic tweet from the president. Supporters of the bill, claiming that every day the country loses another community bank, argue that banks are in trouble. The culprit, in their eyes, is the Dodd-Frank Act, passed in 2010 to prevent another financial crisis, which they argue imposes excessive regulation on banks.
Opponents of the bill note that, as one recent headline had it, American bank profits are higher than ever, and community bank profits rose by more than 10 percent in the first quarter of this year. Despite the consolidation of community banks — a trend that began years before Dodd-Frank, suggesting other causes for the consolidation — the country still has almost 6,000 FDIC-insured banks, and a similar number of credit unions.
Whether you believe that the House bill is a solution in search of a problem or that banks really are being felled by excessive regulation, the legislation still has implications for American consumers. It would cripple the Consumer Financial Protection Bureau, the agency created after the Great Recession to make sure financial institutions don’t take advantage of consumers. For example, after Wells Fargo opened millions of unauthorized accounts for customers, lowering credit scores and increasing borrowing costs, the bureau hit it with a $100 million fine. Under the House bill, the CFPB would be powerless to intervene if a bank did again what Wells Fargo did. The bureau could still bring cases against banks for violating some laws, but only after conducting an economic analysis — a step surely designed to slow cases or even kill them altogether.
The House measure would affect consumers in other ways. The bureau would lose the power to make rules to keep banks from defrauding consumers or treating them unfairly or abusively. Under one CFPB proposal, payday lenders could not catch consumers in an endless debt trap, like the grandfather who paid an estimated $5,000 in interest on a loan of a few hundred dollars by renewing the loan over and over because he couldn’t repay the principal. But the House legislation would not only eliminate the bureau’s power to adopt that proposal, it also would take away the agency’s power to pursue payday lenders for anything, including outright lying to consumers.
The Trump administration has also suggested weakening the CFPB and making it less transparent. While complaining that the CFPB is not sufficiently accountable, the administration has urged changes that would indeed make the bureau more accountable — to lobbyists. Corporate lobbyists are paid to follow the “inside baseball” of the congressional appropriations process while ordinary consumers are too busy with their own jobs and families to do so. Consequently, the administration has recommended that appropriations subcommittees be given power over the bureau, a step that has tamed regulators in the past. All this may owe something to the fact that the administration consulted about 17 times as many industry and trade groups as it did consumer advocacy organizations.
Complying with regulation is frustrating. For example, even if I think I can text safely while driving, the law says I can’t. I have to endure some added cost to accomplish something more important, like saving someone’s life. So it is with Dodd-Frank. Banks don’t want to put up with some of the laws created to keep them from cheating consumers or crashing the economy again. As a result, both the House bill and the Trump administration would eliminate protections put in place to prevent another disaster like the Great Recession. President Donald Trump ran for office promising to protect ordinary Americans. Maybe he should think about whether ordinary Americans are consumers or banks.
Jeff Sovern is a professor of law at St. John’s University and co-coordinator of the Consumer Law and Policy Blog.
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