As a consumer advocate and a military brat, I have long been a huge fan and a lifelong member of USAA. USAA is an insurance company that was set up to assist military families and their dependents. It has a reputation for low rates and great service, but I am disappointed in the firm this week for its clumsy foray into the world of lobbying.
USAA was founded in 1922 by a group of U.S. Army officers to self-insure each other after they were turned down by insurance firms for being a "high-risk" group. USAA is a Fortune 500 firm, but it has an unusual structure under Texas law that allows it to be an insurance company with a banking arm and an investment arm. Since there are no shareholders, profits are retained to maintain the institutions financial strength or they are returned to the members. When I got in my first car accident last year, USAA was on the case within the hour and had my car repaired and all issues taken care of within two weeks.
But as Reuters has reported, USAA has taken a wrong turn on financial reform. As a client, I along with millions of others received an unusual email from the firm entitled "USAA CEO requests your help today." The email argued that the firm should be exempt from provisions in the financial reform bill being debated in Congress because it would "Prevent USAA from managing the association's portfolio as we have for the past 87 years" and "Limit our ability to return money to our members." Yikes. They asked me to call my member of Congress and tell them to exempt USAA from the "Volcker Rule." Tens of thousands of responsible USAA members promptly did so.
I am asking my fellow USAA members to pause and consider why every consumer group in America is a big backer of the Volcker Rule.
USAA Members Should Support the Volcker Rule
The idea was developed by former Federal Reserve chairman Paul Volcker as a modern way to restore depression-era "Glass-Steagall" consumer protections that set up a firewall between Wall Street gambling and Main Street banking.
The spotlight in Washington has been on Wall Street vultures who used their proprietary trading desks to bet that the housing market would collapse. They bet on catastrophe and won, but in the process they mislead their investors and their reckless trading amplified the crisis for the rest of us. Now those same firms have been reorganized and enjoy the backing of the federal government and American taxpayers. In other words, now when they gamble taxpayers are on the hook for their lousy bets. Americans for Financial Reform, an organization made up of 250 public interest groups fighting to crack down on Wall Street, believe this is a impossible situation that should not continue, thus they support the Volcker Rule.
The Volcker rule separates most forms of proprietary trading from the federal guarantee. In other words, you can gamble, but if you do it you have to do it with your own money. The Volcker Rule is a critical reform to the financial system. No one thinks USAA engaged in they type of reckless trading that caused the crisis, but the fact that such rules may also require smaller, well-managed firm like USAA to slightly change their organizational structure is not a sufficient reason in my mind to give USAA an exemption. The next thing you know other firms will start to organize themselves to look like USAA and the whole fiasco starts all over again.
But for those of you who think an exemption is the best way to go, there is a solution that allows for a fix without undermining the rules that rein in the Goldman Sachs and AIGs of the world.
Concerned USAA Members Can Get Behind the Merkley-Levin Amendment
Rather than taking a position that is considered by some as a vote "against" reform, USAA members can support meaningful financial reform. Tell you Senator that you support an amendment proposed by Sens. Merkley and Levin. The Merkley-Levin amendment would allow an insurance company like USAA whose trading desk is subject to state level regulation to continue its insurance business without being subject to the Volcker Rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator like AIG did, then it would be subject to the restrictions.
USAA members can support USAA and support reform. Dare I say, it could be a win win for all of us?
Learn more: read Americans for Financial Reform's letter on the amendment here.
See Americans for Financial Reform's Open Letter to USAA members below.
An Open Letter to USAA Members:
If you are one of the 300 million Americans who have been affected by the financial crisis - if your family has lost a job or retirement savings, or if you've seen state budget cuts and foreclosures in your community - then financial reform is for you. But financial lobbyists have spent $1.4 million a day trying to kill a bill to hold them accountable, and everyday Americans don't have lobbyists to make their support for financial reform heard. That's why we're concerned. Senators can interpret the calls from USAA members as opposition to strong reform, an invitation to carve out loopholes for every lobbyist, or worse yet--opposition to the bill overall. It's important to get the facts first.
Q: Why would "the Volcker Rule" affect USAA?
A: Because USAA is an insurance company that owns a bank, it may be subject to the Volcker Rule's limits on companies doing "proprietary" trading, or trading for the company's own profit, when they also own federally-insured banks. The Rule is designed to stop loosely-regulated, large Wall Street firms like AIG (also an insurance company) from taking high-risk gambles with our savings in ways that don't benefit us, the customers. For years now, banks have been increasingly looking to Wall Street--not Main Street--for investments. That has meant riskier investments, huge bonuses, and ultimately, a financial crash that left taxpayers with the bill. But since USAA is a well-regulated company that invests premiums for the benefit of its customers, it is seeking an amendment to clarify that it is exempt from the Rule.
Q: What can we do to help?
A: Senators Merkley and Levin have created the right amendment to exempt USAA from these limitations. They clarify that the Rule is targeted at the AIGs of the world, not the USAAs. That's why we urge you to support the right amendment - because supporting just any amendment could open up a loophole big enough for AIG.
Tell your Senator that you support the Merkley-Levin amendment to the Volcker Rule:
• It would allow an insurance company like USAA that has good state level regulation to continue its insurance business without being subject to the Volcker Rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator (think AIG), then it would be subject to the restrictions.
And while you're at it, tell your Senator that you support strong financial reform that holds Wall Street accountable, protects consumers and taxpayers, and helps prevent another financial crisis.
The bill would:
• Bring derivatives into a transparent stock-exchange style market so that speculators can no longer make huge, risky and secret bets with our retirement accounts, pensions, and college savings.
• End the era of "too big to fail" banks -- by restoring the separation between commercial banks that take deposits, make loans and receive federal backstops from investment activities that carry different risks, and by setting up an orderly system for dismantling failed financial institutions so that those entities are treated to a "wind down", not a bailout.
• Create a new, independent and accountable Consumer Financial Protection Agency with broad authority to make sure payday lenders, auto dealers, mortgage companies and others who fell between the cracks of the old regulatory world are held to new standards of fairness that prevent tricks and traps in the fine print, kickbacks, and other hard-to-find "gotcha's".
• Require venture capital and private equity fund advisers to comply with the new requirements to register with the SEC that hedge fund managers will meet.
• Give shareholders a stronger voice in the selection of the boards of directors and the executive pay policies of the companies they own.
• Establish a duty for brokers and insurance agents recommending securities, annuities and other investments to act in the best interests of the customers to whom they are making recommendations, and
• Hold credit rating agencies to higher standards - by making them more accountable to investors and the SEC - so that they can't escape responsibility for the "buy" recommendations so many investors rely on.
Americans for Financial Reform