States Should Be Allowed To Protect Consumers From Big Banks, Obama Says

President Barack Obama reaffirmed his commitment Friday to allowing states to adopt stronger consumer protection measures than the federal government when it comes to financial products like credit cards and mortgages.

In a meeting at the White House, Obama told a group of state attorneys general and consumers that he was still committed to the idea. He didn't mention it, though, during his public remarks.

Over the last several years many states have adopted tough pro-consumer laws governing predatory lending, bank fees, interest rates and late charges, only to be told by federal regulators that their laws can't be applied to national banks such as Bank of America, Citibank, J.P. Morgan Chase and Wells Fargo. With the major banks immune from state laws, the measures are largely worthless. Some states have abandoned efforts to provide consumers with added protection from predatory lenders; others have scaled back existing rules after being pressured by federal agencies.

To that end, the administration has proposed a new Consumer Financial Protection Agency. It would consolidate existing consumer protection power spread across a range of agencies. In short, it would be able to write rules governing products like credit cards and then enforce them to make sure consumers are being treated fairly. One aspect of Obama's plan would allow states to enact tougher rules than the CFPA, so CFPA rules would be a "floor, not a ceiling" when it came to consumer protection. Consumer advocates and state attorneys general enthusiastically support the proposal.

Throwing a monkey wrench in their hopes is Rep. Melissa Bean (D-Ill.). She's reportedly preparing an amendment to accompany proposed legislation creating the agency that would prevent states from doing just that. The Wall Street Journal reports that some Democrats would vote against the entire bill if Bean's amendment is attached. With scant Republican support, a splintering among Democrats doesn't bode well for the type of reform the administration first proposed in June to great fanfare.

But Obama isn't backing down, according to Massachusetts Attorney General Martha Coakley, a participant in Friday's White House meeting. Obama was "very sympathetic" to the anti-preemption message from state attorneys general.

"This meeting was for the president...to hear from state attorneys general about our efforts to protect consumers," Coakley said. "It's one of the reasons why he wanted us there, to tell us that he believes the states will be partners in this going forward. This president has been very proactive about states not being preempted. There's no disagreement with us."

State attorneys general historically have been at the front lines protecting consumers. They've also been successful in combating predatory lending, like last year's multi-billion dollar settlement with Countrywide Financial.

Illinois Attorney General Lisa Madigan praised Obama for supporting the attorneys general in their efforts to rein in the abuses perpetrated against consumers.

"Throughout the meeting today, President Obama reiterated his commitment to getting regulatory reform passed this year and encouraged all of us to keep up the strong fight against the special interests working overtime to kill the Consumer Financial Protection Agency," Madigan said in an email.

Bean's proposed amendment, though, has them "very concerned," Coakley said. So does the fact that the financial services lobby is fighting hard to kill or defang proposed reforms, like rolling back preemption, which Coakley calls "fairly outrageous."

"Part of the reason why the system hasn't worked is because [the states] have been preempted in so many areas," she said. "Those members of Congress who agree with the old system, with the U.S. Chamber of Commerce -- they have to own that."

Comments

[3015551212]

10:46 AM on 10/12/2009

No thanks. The federal government should have the ability to protect consumers, penalize lenders, mortgagors, and credit lenders. If there are states with loopholes, then there is still a chance that creditors will simply pick up their hoop skirts and move headquarters to a state where the business climate is more favorable for them.

Not buying it, Mr. President.

[Jebedella Johnson]

10:09 PM on 10/14/2009

What you're describing is the system we have now, the system that brought us the current economic collapse, where lenders are provided refuge from state laws by transferring all their business to a national charter. Under the President's proposal, lenders would be subject to regulations not only on the national level, but on the state level as well: no loop holes, no get-out-of-jail-free card.

[Playin Possum]

08:51 PM on 10/11/2009

Much though I relish kicking the gipper, this one dates back to 1979, when Carter and (I think) Volker tried their turn at jump starting lending.

Any bank that operates either as an "NA" bank - read the fine print - is exempt from State usury laws. Any bank operating in a state like SD, with lax usury laws, can apply that state's laws to their credit accounts and the other states must honor that.

I say screw them all. We should all refuse to pay any card issued by an NA bank or a bank from either of the Dakotas, South Carolina, and a few others. If we refused to pay they would be bankrupt in a week.

[RomeoMD25]

04:01 PM on 10/11/2009

O was Big Finances top recipient in 08 to the tune of $40 million. Might explain
why 9 months later there has been virtually nothing done to reign in Wall St's excesses.
http://www.opensecrets.org/industries/recips.php?ind=F&cycle=2008&recipdetail=A&mem=Y&sortorder=U

[blimie]

03:05 PM on 10/11/2009

Obama has not done anything to protect the consumer, but he has helped the banks in every way and with taxpayer money. A consumer based group, should analyze this and report on its merits and cons because frankly what the government promises is not what it delivers.

[2centsplain]

12:44 PM on 10/11/2009

Forget the idea of States being allowed and rewrite that to say "States Must".

[RTIII]

11:25 AM on 10/11/2009

Whoever wrote the article didn't do their homework.

Usury used to be illegal in most states. But then sometime in the early 80s, under Reagan, usury laws were breached throughout the United States in one fell swoup. The argument was previously that the contract between borrower and lender occurred in the location of the borrower, but that was somehow argued as restraint of trade, if I recall correctly, and thus, whatever state's laws the bank was from could be the governing body of law. And therefore, all it took was one state to not have usury laws and they all fell.

I'm not a lawyer and at the time I was just a kid, however, I do remember it vividly. I would hope someone with a better memory / education on the matter would step up and remind / tell us all the actual story because it's a powerful one AND it's vital to undoing this mess.
.

[guyfrombrooklyn]

10:30 AM on 10/11/2009

I'm not sure on this one. Here's why.

We live in an age of demographic marketing, market marketing, heck even race, religion or group marketing.

Who will watch when the VULTURES we call banks descend upon a certain group they deem "worthy" of their products, because the law is more lenient in this state then the other?

Some Senator who is on the take from the dreaded lobbyists?

How many government reps will SELL THEIR SOULS to the bank lobbying for less restriction in his state or lighter laws? Ask those blue dog Dems how the PubOpt sounds to their donation folks, and you get to see how the people are second to the lobbyist.

Or how about the ditz who's willing to compromise his constituency just to prove he/she can TOE the PARTY line?

I'd rather the FED call the shots, or we'll get some truly partisan C.R.A.P. from state to state.

And citizens paying the bill. AGAIN.

[StPeteDave]

09:19 AM on 10/11/2009

What I want to know is when do the millions of us that were within 10-15 years of 'retirement age' (quotes because none of us will get to retire now) when the corporations and banks $TOLE our retirements, when do we get a bail out. Heck, forget the bailout, how about a decent job with a decent wage. What will happen to those of us that played by the rules, payed our taxes but lost our shirts caring for the medical needs of a family member or we had to live on our retirements when the corporate republicans sold our good paying jobs for a quick buck. I'm getting pretty angry about that, I may not be as loud as a right wing crazy, but I'm just as angry. There a alot of us, and we're pi$$ed off too, problem is, we're terribly depressed and that makes it hard to get motivated. I had to pay taxes and penalties to use MY money when I had no income so some fatcat could get a new ferrari or house in the hamptons? I am not a happy camper. If someone in washington would take on THAT cause, I would carry him/her across country on my back.

[ibsteve2u]

08:38 AM on 10/11/2009

Two thoughts: Yes, the states should be able to act quickly to protect their citizens from the "loopholes" in Federal legislation that the banks and finance industry inevitably find and/or create and rapidly exploit.

And, secondly and humorously, this is hitting the righties right where they live: Their moan about "big government" and how the Democrats try to change Federal law to usurp states' rights...

lolllll....

[einstein10]

02:48 AM on 10/11/2009

YES!!!!!

[einstein10]

03:00 AM on 10/11/2009

It should be federal law.

[CologneCitizen]

02:05 AM on 10/11/2009

On such an important issue it should be a federal law. We have a law in Germany that gives you the right to go after a bank when a clerk gives you wrong info. Therefore it is recommended to go to important meetings not alone in order to have a witness. Your savings account is secured by the government of Germany in case a bank goes bankrupt. There are more regulations too numerous to mention.

Bottom line is, our banks like Deutsche Bank for example still make a lot of money from their customers with these rules. Why is it such a big deal in the USA to find some tools to protect the citizens and customers ? (unless you have the intention to rip them off)

I think a government should get involved in peoples affairs as little as possible. But money issues are way too important to leave them in the hands of banks alone.

[stargazer13]

02:47 AM on 10/11/2009

there were laws and they dismantled them remember !!

[CologneCitizen]

06:26 AM on 10/11/2009

Sorry, I didn't know that, I thought you never had them.

[mjtaylor22]

02:22 PM on 10/12/2009

exactly, that si why the states need fed law as a possible guide, but definitely need to ratian their powers to protect their citizens.
becasue guess who hurts worse when its citizens are unemployed and cannto pay taxes due to fraud etc etc..
the states................

[Jim Marusak]

01:00 AM on 10/11/2009

to be honest, what they have to do in the law is just make it explicit, saying two things: the federal government shall cede the rights of regulating credit cards to the states; and that if a state decided to make laws stricter in their state than other states, that any bank that has customers within that state must follow that state's laws for legal residents of that state (to be defined by the states).

you have to make it so that "forum shopping" for the most usurious environment is discouraged. and if large banks say they don't want to do business in those states, i am sure there would be someone that would gladly take it.

after all, lots of companies don't like "forum shopping" when it comes to civil suits. heck, i don't even like that. but if it's fair for one side, then it's fair for another.

[Organic-Guy]

10:40 PM on 10/10/2009

The best consumer protection Obama could give us would be to fire Summers and Geitner and replace them with people who aren't in bed with the criminals on Wall Street and commit to reforming the banking industry and start with a few high profile arrests like they did during the savings and loan scandal.
So far no one except the middle class who got cleaned out and continue to get pounded into the ground has paid a price for their corruption and dirty dealings. If no one goes to jail the message is you got away with it, don't worry. don't change a thing. Until this happens, we're all screwed for good.

[stargazer13]

02:38 AM on 10/11/2009

Hear Hear!!!

[PureReason]

12:29 PM on 10/12/2009

I have to agree with you. I wish Obama would call a mandatory meeting for all the big bank CEO's to "discuss the issues" and then once they arrive; just arrest them all as traitors to the American People. Then nationalize them and split them up into much smaller regional banks. Put their individual stocks back on the market with a large percentage being owned by the employees who work at the banks. Banks that do well, their stocks will go up and those that don't... disappear.

These big corporate banks are not doing their job and enough is enough.

My local branch used to be almost a pleasure to deal with, but after four or five mergers; it's almost useless. I haven't gone to the branch in 3 years.

[balancedsolution]

10:22 PM on 10/10/2009

Good effort Tiger. But you are the Federal Government.

Let the states have control, but let the Federal government have the final say.

You are the big daddy after all.

PROTECT THE NEXT GENERATIONS

[beartrack]

08:53 PM on 10/10/2009

Mr. President
Don't push this off to the states. That is an excuse Bush, and his criminal cartel, would use for inaction. The people you brought into the administration are a big part of the problem. How about you do something about it. Of course you need to clean your own house first.

[plwood01]

10:41 PM on 10/10/2009

It may work best a tthe state level because not every state allows their representatives to fleece their citizens. Some states have put some measures in to protect people from their banks and some states have just allowed them to fail which was best anyway. In capitalism if you run your business poorly, you deserve to fail. Washington can handle the big banks so the states can handle theirs. I say put a czar in for consumer protections and I choose Ralph Nadar as the first!

[Solja]

01:51 AM on 10/11/2009

I wouldn't choose Nader to shine my shoes.

[rbchilds]

08:05 AM on 10/11/2009

Thing about Ralph Nader, he doesn't get pushed around by corporations and he is a man of integrity. Those 2 attributes ensures he never becomes a viable politician. The 2 Ole Boys clubs (Dems and Repubs) in Washington just couldn't stand to have someone who is honest in their town.

[einstein10]

02:51 AM on 10/11/2009

Good post!