Over the next few weeks, the U.S. Congress will be wrestling with a pair of must-pass government spending bills. In Washington, must-pass spells the danger of backroom deals to jam unpopular measures through in the form of spending-bill amendments known as riders, under the threat of a government shutdown.
That’s how the big banks, in the final weeks of 2014, repealed an important provision of the Dodd-Frank reform law and hold onto their ability to make high-risk bets with federally guaranteed funds. This year, Wall Street is threatening to use the same back-door process to roll back more rules that rein in big bank misconduct and safeguard consumers against abusive financial products.
Unfortunately, Sen. Jon Tester may be part of an effort to negotiate a compromise with some of Wall Street’s staunchest allies.
The immediate focus of these negotiations is a measure to deregulate some of the country’s largest banks under the guise of helping “community banks.” Among the provisions that would roll back systemic risk protections established under Dodd-Frank, remove safeguards against deceptive mortgage lending that preceded the financial crisis, and weaken regulators’ ability to evaluate the safety and soundness of major banks. These provisions come out of the “Financial Regulatory Improvement Act,” a deregulatory bill championed by Senate Banking chair Richard Shelby.
Nearly 90 percent of his bill involves changes that would primarily or exclusively affect the largest financial institutions in the country, including banks with over $500 billion in assets. There isn’t a bank in Montana big enough to cash in on most of Shelby’s proposal.
Beware of budget-bill riders
Tester should take a clear stand against the use of spending-bill riders to get such things done. Anything else puts financial regulation in danger.
One industry objective is to weaken and undermine the Consumer Financial Protection Bureau, the agency that defends consumers against financial fraud and discriminatory lending. Since its establishment in 2009, the CFPB has returned more than $10 billion to over 20 million wronged consumers — and in doing so, has become a prime target for financial lobbyists.
One threatened rider would change the bureau from a director-led agency to a bipartisan board of commissioners, a move backed by abusive lenders precisely because it would make the bureau less effective. Other areas of the CFPB’s work that the financial industry hopes to obstruct include its plans to curb the ability of banks and lenders to prevent wronged consumers from joining forces over a common complaint and its crackdown on discriminatory lending practices that result in minority car buyers being charged higher interest rates on car loans.
Retirement advice rule
Another priority is to stop the Department of Labor from closing a regulatory loophole that allows Wall Street brokers and insurance company salespeople to portray themselves as retirement investment “advisers,” without being required to give honest advice that puts their clients’ best interests ahead of their own. This problem costs Americans an estimated $17 billion a year in foregone retirement savings. Yet Tester has voiced “serious concerns” about the DOL's common sense rule.
Montanans would do well to pay attention to these spending bills. We’ve seen what a government shutdown means, and we don’t need to repeat the experience. Montana has a particularly strong interest in a long-term highway bill, which is likely to give Montana roads about $2.50 in federal money for every dollar our taxpayers put in. We surely don’t need to be forced to choose between safe roads and safe banks or safe loans.
Tester and his colleagues should think twice before encouraging this kind of deal making. Financial lobbyists are fond of the rider strategy because their goals are deeply and broadly unpopular. Public opinion polls show that nearly 75 percent of voters want more, not less financial regulation. The great majority of Americans also support the work of the Consumer Bureau. Both sentiments reach across party lines.
If lawmakers see a need to loosen any of the new financial reform rules, they should be required to do so in the form of stand-alone legislation, not as part of a take-it-or-leave it package deal for vital government spending.