Senate Begins Voting on Financial Reform
Following a series of failed cloture votes, the Senate finally began formal consideration of the financial regulatory reform bill (S. 3217) April 29. Voting on amendments did not begin in earnest, however, until the first week in May. In an early test of whether crucial consumer protections would survive, the Senate voted 38-61 to defeat an amendment by Sen. Richard Shelby (R-SC) that would have fatally weakened the proposed Consumer Financial Protection Bureau. “The Shelby amendment was defeated because it would have kept consumer protection in the hands of the same bank regulators who failed so badly to protect consumers from subprime mortgage abuses and credit card traps and tricks,” said CFA Legislative Director Travis Plunkett.
With amendments being filed at a rapid rate (more than 300 by the end of last week), CFA sent all members of the Senate a guide to key consumer and investor amendments to support and oppose. So far, only a handful of those have been brought up for consideration, and only two credit rating agency amendments and one housing amendment had been voted on. In the meantime, additional amendments not included in the guide had been introduced and, in a few cases, voted on.
Anti-consumer Housing Amendments Defeated
A harmful amendment (#3839) by Senators McCain, Shelby and Gregg, which would have established an arbitrary timetable for the dissolution of government-sponsored housing entities, Fannie Mae and Freddie Mac, was defeated on a 43-56 vote. Instead, the Senate voted 63-36 to adopt an amendment (#3938) to require the Secretary of Treasury to conduct a study on ending the conservatorship of Fannie Mae and Freddie Mac and reforming the housing finance system.
CFA led development of a sign-on letter from consumer and civil rights groups opposing this amendment and another from Tennessee Republican Bob Corker (#3834) that would have removed the bill’s requirement for lenders to retain a share of risk in mortgages they securitize. In addition, the amendment would have imposed a mandatory requirement for all mortgages to have a minimum down payment of at least five percent. The Corker amendment was also defeated.
Meanwhile, Oregon Democrat Jeff Merkley succeeded with an amendment (#3962) that effectively bans yield spread premiums, a practice many believe encouraged brokers and other lenders to steer customers into higher priced mortgages for which the lender received higher compensation.
In something of a surprise, an amendment (#3991) to reduce conflicts of interest in the credit rating agency industry was adopted on a 64-35 vote. Unfortunately, an amendment (#3774) promoting a more reckless approach to reduction in reliance on credit ratings also passed on a 61-38 vote.
Important Votes Still Pending
Although votes on them had not yet been taken at the end of last week, several other amendments identified as priorities by CFA had been submitted for consideration and were expected to come up for a vote early this week.
Of particular concern is an amendment (#3789) from Sen. Sam Brownback (R-KS) to exempt auto dealers from the jurisdiction of the Consumer Financial Protection Bureau. Both the White House and the Pentagon have been vocal in their opposition. CFA issued a release last week highlighting that opposition. Given that opposition, “Senators have been put in a squeeze between auto dealers on one side and the military, civil rights and consumer organizations, as well as independent community banks and credit unions on the other,” said CFA Financial Reform Campaign Director, Susan Weinstock. “We’re hopeful that we can defeat this amendment, thus ensuring that we eliminate predatory car loans that are far too pervasive across the country.”
CFA is also concerned about an amendment from Senator Snowe (#3833) that would cause significant and unnecessary rulemaking delays for the Consumer Financial Protection Bureau. It would require the CFPB to go beyond the normal Regulatory Flexibility Act process that already requires special consideration of small businesses. It would also have the unintended consequence of giving “small” businesses involved in abusive financial practices – such as payday or car title lenders – first crack at influencing or stalling CFPB rules, before the public even gets to look at them.
Also up for consideration are pro-consumer amendments to restore the right of states to protect consumers from usurious credit card lenders (#3746) and to restore the right of defrauded investors to recover damages from those who knowingly assist in committing securities fraud (#3776).
Bill Still Leaves Investors Without Fiduciary Protections
Although revelations regarding Goldman Sachs business practices helped build awareness of the need to raise the standard of conduct for Wall Street firms, none of the amendments offered to strengthen those standards had been brought to a vote by the end of last week and it appeared increasingly unlikely that they would.
CFA continued to press, however, for passage of the Akaka-Menendez-Durbin amendment to require brokers to act in the best interests of their customers when giving investment advice, which CFA Director of Investor Protection called “the single most important step Congress could and should take to protect average Main Street investors.” Letters in support of the amendment can be found here and here.
Meanwhile, in testimony before the Senate Judiciary Subcommittee on Crime and Drugs, CFA Director of Investor Protection Barbara Roper said that imposing a fiduciary duty on Wall Street firms in their dealings with institutional clients could also “help to rein in many of the most egregious practices that have been exposed as we learn more about the causes of the financial crisis” and bring about a needed change in the culture on Wall Street.
At the end of the week, Senate Majority Leader Harry Reid (D-NV) announced his intention to call for cloture on Monday, a step that limits debate on the bill and the range of issues that can be considered. If cloture is agreed to, a final vote on the bill is expected by the end of the week.
Food Safety Bill Awaiting Opening in Senate Schedule
Although Senate leaders from both parties have said they would like to move the bill before the Memorial Day recess, a measure to overhaul the nation’s food safety system remains on hold until an opening can be found in a crowded Senate calendar. The bill (S. 510) received unanimous approval in the Senate Health, Education, Labor and Pensions Committee last November. A companion bill passed the House last July. “The longer the Senate waits, the more outbreaks of foodborne illness we’re going to see that could have been prevented,” said Chris Waldrop, Director of CFA’s Food Policy Institute. “Right now, we’re in the middle of a multi-state outbreak of E. coli O145 illnesses linked to contaminated lettuce,” he added. “The Senate needs to pass S. 510 as soon as possible to provide the FDA with the tools to help prevent these types of outbreaks from occurring.”
House Panel Approves Misguided Multiple Peril Insurance Bill
The House Financial Services Committee voted out multiple peril insurance legislation (H.R. 1264) that CFA has called “the wrong solution to the very significant problems that homeowners in coastal areas have had in recent years obtaining and keeping wind coverage and settling wind claims.” CFA wrote to members of the committee prior to the mark-up urging them to oppose the bill. The bill, which passed on a 40-25 vote April 27, “would vest the monumental task of developing and administering a system of multi-peril home insurance with a government program that is wholly mismanaged and is already subsiding unwise construction in flood plains despite instructions from Congress to make the program actuarially sound,” CFA Director of Insurance J. Robert Hunter warned.
Groups File Facebook Privacy Complaint
Earlier this month, CFA joined with the Electronic Privacy Information Center and 13 other consumer and privacy groups to file a complaint with the Federal Trade Commission charging the social networking site, Facebook, with engaging in unfair and deceptive trade practices with regard to its privacy policies. The complaint states that recent changes to user profile information and disclosure of user data to third parties without consent “violate user expectations, diminish user privacy, and contradict Facebook’s own representations.”
Scorecard Shows Consumers Pay Steep Rates for Small Loans
Many states are failing to provide adequate protections for consumers against extremely expensive interest charges on small loan products, according to a report released last week by CFA, National Consumer Law Center, and Consumers Union. (A copy of the news release is available here. A copy of the report is available here.) The Scorecard, which updates a 2008 report, illustrates why Americans need a strong Consumer Financial Protection Agency, said CFA Director of Financial Services Jean Ann Fox. “Steep rates for short-term small loans trap borrowers in unaffordable debt,” she said. “As consumers struggle to make ends meet in a tight economy, they need protection against rate gouging.”