The Bank Lobby's Insane Assault on Consumer Protection
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"Safety and soundness regulation" means "protecting bank profits." The idea is that if a regulator were really worried about a bank's profitability, it would not let the bank make loans that could not possibly be paid back. Thus, Yingling and his cohorts claim, there is no need for a separate regulator devoted exclusively to protecting consumers. In fact, focusing on consumers would actually confuse everyone and make the whole process fall apart.
This is a complete lie. Bank profits and consumer protection do not in any way go hand-in-hand. Wells Fargo specialized in making egregious subprime loans and selling them off to Wall Street investors. When the consumer got in over his or her head and faced foreclosure, Wells Fargo didn't lose a dime -- some firm on Wall Street took the hit.
"The existing regulatory agencies are principally concerned with safety and soundness. All of them have at least some theoretical jurisdiction over practices that are abusive to consumers, but they have not done a good job," says Rep. Brad Miller, D-N.C., the chief advocate of the consumer regulator in Congress. "That understates it. They've done an abysmal job of protecting consumers."
The funny thing is, Date notes, the ABA made exactly the opposite argument when the Fed was considering imposing consumer protections on the subprime sector.
In a 2006 letter to the Fed about its new consumer-protection "guidance" rules, the lobby group wrote, "The Guidance combines safety and soundness guidance with consumer protection guidance, creating confusion that is best addressed by separating them."
"The argument is a complete about-face from what the ABA was saying between 2004 and 2006," Date says.
But despite the bank lobby's constant assault on the truth, U.S. consumers and any standard of fair play, there are disturbing signs that powerful lawmakers are still far too acquiescent to its perspective.
"Ed Yingling is an old friend and a person we respect immensely," said Senate Banking Committee Chairman Chris Dodd, D-Conn., at the July 14 hearing. "All of us here have worked with Ed Yingling for many, many years and have a high regard for him."
The bank lobby's effectiveness at fending off consumer protections over the past decade proves an important point. There is no major organization at the federal policy table that can defend ordinary consumers against the multitrillion-dollar banking industry.
We need a new regulator for consumers, and we need it now.
Zach Carter writes a weekly blog on the economy for the Media Consortium. His work has appeared in the American Prospect, the Atlanta Journal-Constitution and on CNBC.