LEGISLATIVE DIRECTOR, CONSUMER FEDERATION
BEFORE THE COMMITTEE ON FINANCIAL SERVICES
OF THE U.S. HOUSE OF REPRESENTATIVES
ON BEHALF OF CONSUMER ACTION, CONSUMER FEDERATION
OF AMERICA, CONSUMERS UNION, CENTER FOR RESPONSIBLE
LENDING, NATIONAL CONSUMER LAW CENTER AND THE U.S.
PUBLIC INTEREST RESEARCH GROUP
IMPROVING FEDERAL CONSUMER PROTECTIONS IN
JULY 25, 2007
I. Summary of Concerns and Recommendations
Any discussion about the quality of federal financial services regulation must begin by
mentioning the “elephant in the living room.” The Supreme Court’s recent decision in Watters
vs. Wachovia Bank, N.A. represents the culmination of efforts by the Office of the Comptroller
of the Currency (OCC) to cut off the long-standing ability of states to protect the consumers of
national banks. OCC’s preemptive efforts harm consumers because, while not perfect in many
respects, states have traditionally had the experience, the regulatory infrastructure, the
willingness to experiment and the desire to protect consumers. Unfortunately, the OCC has
serious deficits in all of these categories. In fact, over the years, the OCC appears to have
demonstrated a lot more interest and expertise in exercising preemptive authority than in
protecting consumers. Our recommendation is for Congress to clarify and limit the OCC’s
preemptive authority, as Representative Gutierrez has proposed, restoring the ability of the states
to assist in protecting consumers who purchase financial services from national banks.
We recommend a number of consumer protection standards that the Committee can use
to evaluate the effectiveness of financial services regulation, whether state or federal, and to
propose changes to improve federal efforts. 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.
In order to improve federal consumer protection efforts, serious underlying problems
with this regulatory culture must be addressed, including a focus on safety and soundness
regulation to the exclusion of consumer protection, the huge conflict-of-interest that some
agencies have because they receive significant funding from industry sources, the balkanization
of regulatory authority between agencies that often results in either very weak or extraordinarily
sluggish regulation (or both) and a regulatory process that lacks transparency and accountability.
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.
For the entire testimony, click here (PDF format only).