Despite Some PR Spin, the Top U.S. Bank Cop Is Still Pushing the Same Anti-Consumer Agenda
Just two weeks after echoing the bank lobby's primary argument against financial reform, the top U.S. bank regulatory agency is changing its tune—sort of. While the Office of Comptroller of the Currency (OCC) is still pushing hard to weaken consumer protection rules in banking, the agency is working hard to make its deregulatory zeal appear less abrasive to the public.Establishing a new Consumer Financial Protection Agency (CFPA) has become the central political battle in the debate over financial reform. The bank lobby fiercely opposes it, because banks like making money any way they can, predatory or not. The existing federal regulators, including the OCC, are charged with both preventing consumer abuses and ensuring that banks don't fail—the latter known as "safety and soundness" regulation. In practice, this dual mandate has meant that consumers almost always get thrown under the bus in the name of bank profitability. So long as a consumer abuse creates short-term profits for banks, the OCC and their cohorts simply look the other way. And for the most part, the OCC wants to maintain the status quo. Consider these comments from Comptroller of the Currency John Dugan—who heads the OCC—before a meeting of the American Banker's Association, the top bank lobby group, on March 17, in which Dugan essentially argued against consumer protection regulation altogether. "In every case consumer protection has the edge and will trump safety and soundness, and I think that is backwards," Dugan said. But last week, Huffington Post reporter Shahien Nasiripour noted that both Dugan himself, and the top OCC public relations official, Robert Garsson, are softening their tone. Garsson told Nasiripour that it is "unlikely there will be any meaningful conflicts between safety and soundness and consumer protection," and says the OCC is "very much in favor" of an independent regulator that only works to protect consumers. Dugan himself also downplayed his bank lobby talk: "It's hard to say in the abstract what sort of conflicts could arise, though I don't think there will actually be many instances in which there is a genuine conflict." Unfortunately, these comments don't amount to much. While Dugan and the OCC say they support a strong consumer regulator, what they actually have in mind is a powerless agency. Here's what Garsson told me on March 31:
We have always supported having a strong rule-writing agency to write consumer protection rules....Our position basically hasn't changed. However, in the area of underwriting, there is a bit of a concern with the potential conflict between a consumer agency and a prudential bank regulatory supervisory agency, and exempting the underwriting standards is a way to minimize that conflict.
In banking, "underwriting" means deciding who to lend money to, and on what terms to lend it. The entire point of establishing better consumer protections is to end abusive underwriting—that's where predatory lending happens. The subprime mortgage monstrosity was essentially a massive underwriting failure. If the OCC gets to establish underwriting standards—or veto those established by a new CFPA—it has the ability to overrule anything meaningful from a new consumer-oriented agency.
And there is little reason to doubt that the OCC would jump at the chance to slap down the new agency. The OCC has a long record of attacking other regulators to protect the banks it supposedly regulates. In 2004, the OCC actually joined the bank lobby—that's right, the bank lobby—to sue state regulators and prevent them from enforcing anti-predatory lending laws. The OCC and the bank lobby prevailed until 2009, when some of the OCC's powers were scaled back by the Supreme Court. Given this history, there is no reason to believe the OCC wouldn't immediately begin crusading against a new CFPA every chance it gets. With the authority to override consumer protection rules on underwriting, the OCC could legalize just about any consumer abuse.But the so-called "support" that Dugan and the OCC offer for an independent consumer regulator is actually weaker even than this. The OCC doesn't want the CFPA to be able to enforce the few rules it could actually write. Enforcing consumer protection would be a power preserved for the OCC. And again, the OCC's track record does not instill confidence. During the height of the subprime lending boom, there were good rules on the books that could have prevented the meltdown—but the OCC simply did not enforce those rules. Because the OCC and other federal regulators were so indifferent to consumer protection over the past decade, the only truly stand-out regulators in this area have been at the state level. But whenever state regulators attempted to crack down on an abusive bank, the OCC stepped in to block them. With the 2004 lawsuit, the OCC invoked a power known as "preemption," which allowed the agency to simply overrule any state regulation concerning big banks. That era ended last year, when the Supreme Court scaled back some of the OCC's authority and gave states the power to enforce their own consumer protection laws against big banks. But Dugan and the OCC are currently pushing Congress to enact a law reversing the Supreme Court ruling. Taken together, the OCC's official policy stance is actually for weaker consumer protection rules than those that currently exist. The independent CFPA envisioned by Dugan would be effectively powerless, and the state regulators would not have the authority to step in where the CFPA proved insufficient. Instead of strengthening the framework that lead the economy to the brink of collapse, Dugan wants to sabotage it further. The OCC is pushing the same anti-consumer agenda it has been promoting for months, but the agency is dressing up its deregulatory fervor in the language of support for meaningful reform.