Make us your home page
A Times Editorial

Bank lobby targeting consumers

Here is what the financial services industry's $220 million in lobbying fees is on the verge of buying from Congress: a significant watering down of proposed regulations to control banks, credit card companies and other financial institutions. It is not too late to stop the sale.

A measure scheduled for debate today in the House Financial Services Committee would create a new federal agency broadly charged with protecting consumers from lenders who push duplicitous loans and charge usurious fees. The outcome will largely determine whether Congress has a fighting chance to beat back the lobbyists' onslaught.

The financial crisis America has faced over the last year was in part a failure of regulation. Had regulators been protecting consumers by reining in liar-loans and predatory subprime mortgages, the economy would not have been put at such risk. To address these failings and others, the House Financial Services Committee under Chairman Barney Frank, D-Mass., has been working on reforms proposed by the Obama administration that would overhaul the way the financial sector is regulated. A centerpiece of the proposal is a new consumer financial protection agency to guard against abusive and deceptive practices.

But an amendment passed last week would exempt 98 percent of the nation's 8,200 banks from annual examinations of lending activities by the new agency. Banks are fighting desperately against this new cop on the beat whose mission would be to protect consumers from imprudent loans and the kind of fine-print "gotcha" fees that banks have been charging credit and debit card customers for years.

The amendment exempts banks with assets less than $10 billion and credit unions smaller than $1.5 billion from regular scrutiny by the new consumer agency. Those institutions hold only about 20 percent of the assets of commercial banks, while the biggest 150 banks hold the rest.

The deal was made to mollify moderate Democrats who have been hearing from community banks angry at the prospect of dealing with a new set of regulators. And while the amendment is a disappointment, the consumer agency is still empowered to write regulations for all banks and lending institutions, a key provision.

The fight over the financial overhaul is expected to continue this week in the House committee. Already there have been some tough compromises. Financial lobbyists have successfully killed a requirement that lenders offer customers 30-year fixed mortgages whenever they try to sell an exotic adjustable-rate mortgage. Also gone is a requirement that lenders ensure that the loans they are selling are reasonable for the borrowers. But the banking industry isn't finished. It would like to see the defeat of any new consumer agency, which would gut the proposed reforms.

When the government ignored abusive, self-serving practices by banks and investment firms, the greatest economic recession in the lifetimes of most Americans was the result. No matter how many millions are spent, the financial services lobbyists cannot be allowed to succeed. A consumer financial protection agency with strong regulatory powers must be part of any final deal.

Bank lobby targeting consumers 10/19/09 [Last modified: Monday, October 19, 2009 6:35pm]
Photo reprints | Article reprints


Join the discussion: Click to view comments, add yours