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.
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.