PI Original Angela Caputo Friday December 11th, 2009, 9:41am

Bean, The Banks, And Weakened Consumer Protection

Right on schedule, Illinois Democratic Rep. Melissa Bean
threatened to thwart debate on a host of consumer-friendly financial
protectionsthis week if her preemption amendment
wasn't included in the final negotiations. The amendment -- which aims
to weaken the emerging ...

Right on schedule, Illinois Democratic Rep. Melissa Bean threatened to thwart debate on a host of consumer-friendly financial protectionsthis week if her preemption amendment wasn't included in the final negotiations. The amendment -- which aims to weaken the emerging Consumer Financial Protection Agency (CFPA) by blocking states from enforcing consumer protections that are more stringent than federal laws -- dominated the latest round of negotiations over financial reform. And in the end, a "compromise" was struck that will allow federal regulations to trump state laws on a case-by-case basis.

In a blow to consumer advocates, the Office of the Comptroller of the Currency (OCC) -- rather than the CFPA -- would make those decisions if the legislation is ultimately passed. USA Today's editorial board recently characterized the OCC as "a banking lobby embedded in the Treasury Department." American Banker has more details on the proposed arrangement:

[T]he OCC could preempt a state consumer protection law by simply writing a letter or issuing a ruling. It would reaffirm the deference given to the OCC’s rulings by the courts.

It would also allow the agency to preempt all equivalent state standards at once. For example, if the OCC were to preempt an Indiana credit card disclosure law, it could apply the same standard to other credit card disclosure laws with similar language.

The bill would also lower the threshold required for the OCC to preempt state standards by saying that it can override any law that "prevents, significantly interferes with, or materially interferes" the business of banking.

Shahien Nasiripour, over at the Huffington Post, ponders the effects of the deal. Not surprisingly, they fall in the banks' favor.:

Because of the compromise, national banks may still be able to completely avoid stronger state consumer protection measures. State regulators could be unable to regulate the $1.5 trillion in home mortgages held on the balance sheets of national banks, for example -- a total more than double that held by state banks, according to a Huffington Post analysis of federal banking data. They also could have no say about the nearly $295 billion in credit card loans held by national banks, nearly five times as much held by state banks.

Meanwhile, a far more consumer-minded Chicago Democrat, Rep. Mike Quigley, has offered his own amendment (PDF) to the House bill. Quigley is calling on the Treasury Department to force mortgage lenders -- whom he calls "notorious for making errors and using egregious delay tactics" -- to make more of the current mortgage modification process.  He also wants to see them produce complete analyses of denied claims. Quigley explains the significance in a statement:

Several constituents told me recently that when they applied for mortgage modifications, they were either denied without explanation or given the run-around by their lender. It is unacceptable to keep families in the dark about decisions that threaten their homes and long-term financial stability, especially now.

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