WASHINGTON — Industry lobbyists are trying to strip a provision from an appropriations bill that could give the Federal Trade Commission and state attorneys general sweeping new powers over banks.
While they were focusing on a separate bill that would let bankruptcy judges restructure mortgages, lobbyists largely missed the provision, which was included in the appropriations bill the House passed last week.
As the Senate prepares to vote on the bill this week, lobbyists are trying to kill the provision, calling it a power play by state attorneys general.
"We see this as part of a wave of proposals that the state attorneys general are looking to put into any legislation being considered by Congress where they're given the ability to go into or enforce laws against national banks," said Marcia Sullivan, the head lobbyist of the Consumer Bankers Association. "They don't have the expertise that the bank regulators have, and it could really have the effect of just changing our entire regulatory system."
The provision would let the FTC write new mortgage lending rules defining unfair or deceptive acts or practices. The measure also says state attorneys general could enforce these new mortgage lending rules as well as any violation of the Truth-in-Lending Act.
Exactly what impact the provision would have is up for debate, including whether it even applies to depository institutions. The measure's sponsors argue banks are not meant to be targets of the provision, but industry lawyers said its wording would allow state attorneys general to bring a suit against a national bank.
Industry lobbyists are trying to remove the provision or at least win specific language exempting banks and thrifts, but they face a difficult battle.
The bill is under a tight deadline, with the current budget scheduled to expire on March 6 and lawmakers hoping to enact a new bill before then. Any changes to the Senate bill must go back to the House for approval, and lawmakers are under the gun to finalize the legislation.
Banking industry lobbyists also have significantly less clout given the political unpopularity of bankers in the current crisis.
"It's going to be an uphill fight to getting it removed based on timing alone because it has to be done by Friday, which is the make or break deadline," said Scott Talbott, a senior vice president for the Financial Services Roundtable.
Most of the banking trade groups are allied in the battle to scuttle the measure, including the CBA, the Roundtable, the American Bankers Association, the Independent Community Bankers of America, and the Mortgage Bankers Association.
Their efforts appear to have at least the tacit support of some regulators.
Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday that she supported giving state attorneys general the right to examine nonbanks for violations of the Truth-in-Lending Act but that giving them power over banks as well would be problematic.
"We'd like to keep the authority for TILA enforcement for the institutions that we regulate," Bair told the National Conference of State Attorneys General. "But for nondepositories, we had actually suggested that the state AGs as well as the state bank supervisors should have expanded authority to enforce the law."
Speaking later with reporters, Bair said supervisors need to leverage resources and "it would be better to leave" TILA enforcement of banks to their regulators.
"The corollary of that is the bank regulators need to show we're willing to use those authorities," she said.
(In her speech, Bair said the FDIC is pursuing thousands of criminal and civil cases related to mortgage fraud.)
The Office of the Comptroller of the Currency is talking to the Senate Banking Committee about exempting banks.
Sen. Mike Crapo, R-Idaho, plans to offer a motion to strike the provision, and Senate Banking Committee Chairman Chris Dodd, in a letter Tuesday, told the Appropriations Committee to back off.
Crapo's spokeswoman said, "The senator's sense is that the provision is unnecessary, because the state AGs already have that authority" to examine nonbanks "and the concern is that this is going to create confusion and add another layer of bureaucracy."
The provision was written by Sen. Byron Dorgan, whose office said it was intended to apply only to mortgage bankers and other "nonbank entities" overseen by the FTC.
The North Dakota Democrat added the provision, an aide said, because he is concerned about the financial crisis and wanted to "put more cops on the beat and essentially beef up the resources" of those enforcing lending violations.
But banking lawyers said the language is so vague that it gives state attorneys general broad authority to bring lawsuits against banks.
"This basically would just confuse everything," said Howard Cayne, a partner with the law firm Arnold & Porter LLP. "It's just going to result in endless litigation over who gets to sue for what."
Cayne said the provision makes no acknowledgement of the role of banking regulators and makes state attorneys general the guardians of truth-in-lending law.
"It would make the state AGs the default premier enforcer of all Truth-in-Lending Act claims as long as they give notice to the FTC," he said. "It ignores all sorts of things. … This is just a blatant power grab by the state AGs and state trial lawyers trying to take advantage of the economic debacle facing the country."
But state attorneys general argue that such power could be helpful in weeding out discrimination and other issues at banks and nonbanks.
"It's important for a state attorney general to have authority over these issues or that there be concurrent authority, because often our offices are going to see these issues first, when consumers come in with complaints," Kelly Ayotte, the attorney general of New Hampshire, said in an interview. "We'll have the boots on the ground to deal with the problems much faster often than federal authorities."
Alys Cohen, a staff attorney with National Consumer Law Center, agreed that some of the language is ambiguous but said the provision would be "helpful" in protecting consumers.
Under her interpretation, the FTC could only target entities it now regulates, a group that excludes banks. But she acknowledged that the power of state attorneys general appeared open-ended.
"Our view is more enforcement of stricter rules against banks and nonbanks is sorely needed," she said. "Frankly, the current crisis is evidence that the bank regulators have been asleep at the wheel."
