U.S. PIRG Consumer Blog: Hearing today on bank preemption and consumer protection

A series of unwise adverse court and regulatory decisions has preempted state authority to protect consumers from unfair bank practices. Today, Travis Plunkett of the Consumer Federation of America represents (his testimony) U.S. PIRG and a coalition of leading consumer and community groups at a hearing of the House Financial Services Committee on Improving Federal Consumer Protections In Financial Services. Basically, most federal consumer rules are written by the Federal Reserve Board, which could care less and often ignores Congressional deadlines. Worse, most of those rules and laws are enforced by the powerful but obscure Office of the Comptroller of the Currency (see our OCCWatch page), which has a lack of will to offend the national banks which fund its fiefdom. The question, then, is what should Congress do? In our view, the most important things that it could do are to (1) restore authority for dual enforcement by state attorneys general; (2) eliminate the sweeping preemption of state consumer laws; (3) increase oversight of the sleepy (Fed) and aider and abettor (OCC) federal regulators; (4) grant authority to the FTC over banks, as an honest broker regulator not in bed with the banks. Our testimony by Travis Plunkett has more details (excerpt below):

One of the most difficult problems that the Committee will face in attempting to improve consumer protection efforts is a culture of coziness with the financial institutions they regulate at most of the agencies and an insensitivity to consumer concerns. For example, most of the regulatory failures we highlight today are in areas, like oversight of high-cost "overdraft" loans, where federal regulators have existing authority to act and have chosen not to do so. Simply increasing the authority of the agencies to write or enforce rules, or to offer a unified complaint hotline, will not change the culture in some agencies that has caused them to ignore festering problems in the credit arena or to reject adequate consumer protection measures. [...] The key to addressing these root problems is to make the regulatory process more independent of the financial institutions that are regulated. This means allowing the Federal Trade Commission (FTC) to bring enforcement actions against national banks and thrifts for unfair and deceptive practices and to initiate regulation of these entities. It also means granting consumers the right to privately enforce federal laws. Finally, Congress should act to rein in lending abuses where agencies have shown an unwillingness to act vigorously, such as credit card lending, sub-prime mortgage lending and the use of deceptive and high-cost “overdraft” loans by national banks.