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."
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