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Lawmakers launched a much-anticipated debate Tuesday over how much leeway national banks and federal thrifts should have to preempt state consumer protection standards, but no resolution appeared in sight.
October 20
WASHINGTON — Members of the House Financial Services Committee continued to wrestle Wednesday over how much power to entrust to a proposed consumer protection agency, adopting an amendment during the fourth day of debate that would partially restore national bank preemption.
The proposed new agency's powers have been a central theme of debate with Republicans generally opposing its creation and looking for opportunities to curb its authority and Democrats debating amendments that would require the agency to tackle specific abuses.
Banking industry representatives remained on the defensive as Reps. Jackie Speier, D-Calif., and Maxine Waters, D-Calif., proposed an amendment that would let the new agency set usury caps.
Rep. Scott Garrett, R-N.J., sought to highlight underlying language in the bill that prevents it from setting rate caps and proposed additional language that would explicitly bar the agency from setting prices or fees by clarifying such powers remain with current federal regulators.
Garrett said that his amendment was meant to expand the bill's prohibition on setting rates to include prices and fees.
"If the CFPA were to be able to, by itself, set prices, rates or fees, in essence it would be able to further limit credit availability for millions of consumers," said Garrett. "Without this amendment it would be possible for the director and the agency to become a basic rate-setting bodies."
During debate, House Financial Services Committee Chairman Barney Frank said he supported the bill's prohibition on flat usury caps but said that he would oppose any effort to limit the agency's ability to consider rates and fees when deciding if a product were unfair.
The Massachusetts Democrat cited overdraft fees as an example, arguing borrowers often do not know they have the protection since they are usually automatically enrolled in such programs and he argued the fees are unfair because they are so much higher than the institution's costs.
"There is a fee that I think we should be restricting, maybe by a separate bill but maybe through the consumer regulator and that's the overdraft issue," Frank said during debate on the Garrett amendment. "There is legitimate consumer unhappiness over excessive overdraft fees... I don't want to pass an amendment that says this agency cannot deal with overdraft fees."
Other amendments include a financial autopsy amendment from Rep. Alan Grayson, D-Fla., that would let the consumer agency director ban any product or service that was deemed to have caused a substantial number of bankruptcies or foreclosures.
A vote on both amendments and the underlying bill are expected Thursday.
The panel did approve by voice vote an amendment designed to restore some level of federal preemption for national banks.
Under the original bill, states would be able to write and enforce their own laws against federally chartered institutions. But the amendment from Rep. Mel Watt, D-N.C., and Rep. Dennis Moore, D-Kan., is designed to allow the Office of the Comptroller of the Currency to preempt state laws on a case-by-case basis when the statute significantly interferes with a national bank's ability to conduct business. The amendment is meant to restore a standard set by a 1996 Supreme Court case, Barnett Bank V. Nelson.
Sources differ, however, on whether the measure actually accomplished that goal. Several critics argue the new standard would be confusing to implement and substantially weaker than the so-called Barnett standard.
But a Republican effort to strengthen the preemption standard failed on a 38-to-29 vote. Rep. Jeb Hensarling, R-Tex., introduced an amendment originally drafted by Rep. Melissa Bean, D-Ill., (who was unable to attend because her family is sick with the swine flu) that would leave the current preemption standards intact.
Several lawmakers said they would continue to work on the Watt-Moore amendment. Watt said he was considering changing the amendment so that the OCC could preempt a class of activities, not just a particular statute, and another change that would reestablish the court's deference to the OCC.
But Frank said he supported the Watt amendment as is and told reporters late Tuesday that he would only consider minor "refinements."
