Rep. Ed Perlmutter pushed and pushed and pushed for an amendment to exempt some of the country's biggest banks from supervision by a new consumer-protection agency.
The Colorado Democrat's office says it was to create "a more targeted approach" that goes after the biggest of the big banks. But the financial regulation bill being debated in the House already limits its examination authority to the 2 percent of the nation's banks with more than $10 billion in assets.
Perlmutter's amendment failed twice, most recently on Thursday morning, when it was nixed by the House Rules Committee. But the third time was the charm as Perlmutter and Financial Services Committee Chairman Barney Frank engaged in a colloquy Thursday night -- a pre-scripted dialogue on the House floor -- so he could get the spirit of his loophole in the bill without actually having to have a vote.
It's now enshrined forever in the Congressional Record as Congress's intent -- a loophole for some of the nation's biggest banks to evade additional scrutiny of their consumer practices in the wake of the biggest economic crisis in 80 years, brought about in large measure because of the lack of adequate consumer protections.
Why would a Democratic member of the House Financial Services Committee push so hard for a loophole like that?
Perlmutter has been a vocal advocate for banking interests on several issues this year, much like his fellow members of the New Democrat Coalition. But a Huffington Post review of Perlmutter's family ties, financial interests, background, and, most significantly, the pace and timing of recent campaign contributions from financial interests suggests that he had much to gain from his advocacy.
On Sept. 22, Frank released a two-page memo that said a draft version of the bill creating the Consumer Financial Protection Agency would be released soon. That same day, the Independent Community Bankers of America's (ICBA) political action committee contributed $1,000 to Perlmutter.
The next day, Perlmutter received $2,500 from the American Bankers Association PAC. It was just the second time since 2007 the ABA had given him a check for at least $2,000.
On Sept. 25, the committee released its discussion draft of the bill creating the proposed agency. Five days later, the Credit Union National Association PAC contributed $2,500 to Perlmutter, his biggest one-day haul from the group in more than two years.
Two weeks later, Perlmutter introduced his amendment for the first time carving out big banks from exams by the proposed consumer agency. He later withdrew it.
Since then, Perlmutter has received another $2,500 from the ICBA and ABA each; he also received $5,000 from U.S. Bancorp's PAC. U.S. Bancorp is one the nation's largest banks -- and Perlmutter and his children own between $150,000-$350,000 in the company's stock.
The amendment to the Wall Street Reform and Consumer Protection Act of 2009 died again Thursday morning, when the House Rules Committee ruled it out of order, yet was reborn Thursday night thanks to Financial Services Chairman Barney Frank.
"This isn't a loophole. This is actually the Chairman's intent for what the bill does, and it was just clarified for the record what the bill currently does as written," said Leslie Oliver, Perlmutter's communications and policy director.
Perlmutter was not available to speak with the Huffington Post. Oliver said there was no connection between the campaign contributions and Perlmutter's actions. "He is campaigning. He accepts campaign contributions. Look at the totality of his campaign contributions," she said.
Of the $28,500 committees donated to his campaign in October, more than two-thirds came from the financial services industry.
The principle behind his amendment, she said, "is still getting at the largest institutions that were part of the problem and it's still getting at the unregulated institutions that were part of the problem." During Thursday's colloquy with Frank, Perlmutter said that "if an institution's functional regulator has deemed that its consumer compliance record is strong" then it wouldn't need to be subject to regular exams by the new agency.
But nearly every bank supervised by national bank regulator the Office of the Comptroller of the Currency sports a strong consumer compliance record. During each of the last four years the following percentages of banks scored either the highest or second-highest rating available: 94 percent, 94 percent, 97 percent, and 97 percent, respectively.
Perlmutter and his children own between $182,000 and $480,000 in stocks and bonds in three banks, according to his most recent financial disclosure forms filed with Congress. One of those banks -- San Francisco-based New Resource Bank -- was founded in part by his ex-wife, who he divorced last year. The bank is currently under sanction by the Federal Deposit Insurance Corporation for various "unsafe and unsound banking practices," which include poor management, too many bad loans, and inadequate supervision by the bank's board.
Prior to his 2006 election, Perlmutter worked as an attorney in private practice representing banks and financial institutions. His clients included Chase Home Finance, a unit of JPMorgan Chase; Wachovia Commercial Lending and Wachovia SBA Lending, units of the bank that was swallowed up by Wells Fargo last fall; First Financial Federal Credit Union; and Chase Manhattan Mortgage Corporation, according to forms filed with Congress.
Oliver said Perlmutter's investments are held in family trusts over which he has no control. She added that he also represented individuals and small businesses in bankruptcy proceedings.
Perlmutter's amendment called for those banks without a full-time, on-site government regulator to be exempt from the new consumer-focused exams. That could have reduced the number of banks subject to examination from 112 to as little as 39.
Oliver argued that Perlmutter's approach was preferable to the $10 billion carve-out because $10 billion "is an arbitrary threshold." By focusing on those institutions in which the existing regulator feels it's necessary to house an inspector on site, Perlmutter's amendment calls for the new agency to focus on only the biggest banks, Oliver said.
But an OCC spokesman says it places its examiners at banks that are engaged in complex and sophisticated activities, like trading derivatives. It's not necessarily the biggest banks -- it's the most complicated banks. And the new agency would be looking for different sorts of things, anyway.
Oliver says Perlmutter has supported various measures that have been unpopular with banks, like the recent credit card reform law and allowing judges to modify mortgages in bankruptcy.
And yet Perlmutter's attempts to shield some of the country's biggest banks from increased supervision was not the first time he tried to help the banking industry this year.
Last month, for example, Perlmutter introduced a provision that would strip the independence of the board that sets financial accounting standards. As reported by the Huffington Post, the move would effectively allow bank regulators to set their own accounting standards in rough economic times. By changing how banks account for assets and liabilities, bank regulators could allow failing banks to appear completely healthy -- an incentive when the regulators' record is partly judged by the number of bank failures.
"He votes and proposes legislation to actually try to fix the problems in the system," Oliver said. "He believes the bill as written, which everybody supports, frankly does what it needs to do."
READ the full exchange between Perlmutter and Frank below:
My point here is to enter into a colloquy with the chairman. Mr. Chairman, I had submitted an amendment to exempt certain smaller banks and credit unions that was not passed in the Rules Committee.
So, it is my understanding that the legislation would give the new CFPA [Consumer Financial Protection Agency] the authority to delegate the authority to conduct examinations and enforce consumer protection provisions to the functional regulator for financial institutions that fall above the $10 billion asset threshold. Would it be fair to say that the intent here is not to increase burdens on those institutions that have been good actors?
For example, if an institution has an on-site examination or audit team from their functional regulator, it would seem that adding a CFPA team to work with those already there would not be as big a burden; however, if an institution's functional regulator has deemed that its consumer compliance record is strong and the institution's regulator is doing an effective job it would seem that subjecting them to CFPA examinations and enforcement would increase the regulatory burden on the institution.
Is this a situation where the Chairman would envision the CFPA delegating that authoirty back to the functional regulator?
With regard to the permanent audit team, they may be the largest institutions and that's a somewhat separate question. But for those that don't have a permanent audit team, not only would it be better for the regulated entity -- it would be better for the CFPA.
They will realize any agency has limited resources. And if you have a bank that's $13-$14-$17 billion in assets and has had a good record as most of those banks have had in consumer affairs, it would be a great waste of regulatory resources to be doing that, when they would have had the option instead of simply sending a CFPA member to join the other team.
So yes, I would hope that the CFPA would take full advantage of this authority with those banks.