Posted on Thursday, March 17, 2011
WASHINGTON -- A rift is emerging among bank lobbyists over the new Consumer Financial Protection Bureau as the deadline approaches for President Barack Obama to nominate a permanent director for the nascent agency.
A Tuesday letter urging greater deliberation and care in adopting new regulations that was sent to Treasury Secretary Tim Geithner and congressional banking committee heads by the U.S. Chamber of Commerce, the nation's preeminent business lobby, included the signatures of a dozen business groups, but failed to garner support from a majority of influential financial lobbying organizations.
Notably absent from the list of signatories were several of the most powerful bank lobby groups: the American Bankers Association, the Mortgage Bankers Association, the Independent Community Bankers Association, the Consumer Bankers Association, the Credit Union National Association, the National Association of Federal Credit Unions and the Financial Services Forum.
Instead, many of the groups that signed onto the letter represented "non-bank" financial institutions -- that is, companies that do not accept federally insured deposits, such as payday lenders, check-cashing agencies, specialty mortgage shops and other firms that frequently target those without formal bank accounts. Such companies, which often compete directly with community banks and credit unions, are not yet subject to federal banking regulations, but last year's Dodd-Frank financial reform law put them under the jurisdiction of the CFPB, unless the agency does not have a permanent director confirmed in the Senate by July.
"There was an awful lot of emphasis on the non-bank sector in that letter, the mortgage companies and the like," ICBA lobbyist Steve Verdier told HuffPost. "The wording is pretty nuanced, but our fundamental position is that banks are heavily regulated and supervised by their examiners, and the non-bank players need to be subject to stronger oversight."
Aside from the Chamber, whose most active bank members include too-big-to-fail behemoths like JPMorgan Chase, the only major bank lobbying group to sign off on the letter was the Financial Services Roundtable, which represents large, complex banking firms like JPMorgan, Bank of America, Wells Fargo and Citigroup. The Chamber also garnered the support of less influential lobbying groups whose members include payday lenders, check-cashing agencies and unregulated specialty mortgage companies. Other groups that signed the letter, such as the American Escrow Association, are virtually unknown in Washington.
Specialty mortgage firms and big banks were at the heart of the mortgage crisis. Together, they sold the vast majority of subprime mortgages to consumers during the housing bubble, while banks packaged large volumes of questionable loans into securities for sale to investors.
Community banks, credit unions and even most larger, simple commercial banks without investment arms were generally not involved in the seediest elements of the mortgage crisis, however, sticking to conventional loans as their competitors fed the supbrime frenzy.
Harvard professor Elizabeth Warren, currently a special adviser to the president tasked with setting up the CFPB, has made no secret of her desire to target complex megabanks and specialty mortgage shops with the new agency's powers. Warren, a favored candidate for the permanent director spot among consumer-protection advocates, has also reached out to community banks and credit unions in an effort to find ways to eliminate unnecessary regulatory burdens.
"Ms. Warren was at our meeting yesterday and pointed out that that agency wasn't set up to go after credit unions per se," Credit Union National Association spokesman Patrick Keefe told HuffPost on Wednesday. "It was set up to go after some of the unregulated lenders, payday lenders, as well as some of the actors that did cause the crisis -- big banks and the like." CUNA is not endorsing a specific candidate to the CFPB post.
While community banks and credit unions don't have the same campaign war chests that too-big-to-fail behemoths do, their umbrella lobbying organizations wield significant power on Capitol Hill, since community banks and credit unions are present in every congressional district and are much more popular with voters than big banks that received taxpayer bailouts.
Specialty mortgage firms, payday lenders and check-cashing agencies compete with community banks and commercial banks for several types of business, and the fact that they are currently virtually unregulated gives them a major advantage over their historically more responsible peers. As a result, lobbying groups who represent simple banks are eager to see regulators crack down on the non-bank financials.
Banks typically avoid associating with payday loan firms and other such groups to avoid a "reputation risk," and Tuesday's Chamber letter included these entities only indirectly, through umbrella groups that also represent mobile home manufacturers and chain franchises like Pizza Hut and Radio Shack. But bank lobbyists said they were particularly worried about the letter's language concerning firms that are currently insulated from regulatory oversight.
"The CFPB should focus its energies is on supervision and examination of non-bank financial providers," American Bankers Association Chairman-elect Albert Kelly Jr. said in a congressional hearing on Wednesday. ABA has the broadest array of membership of all the bank lobbying arms.
While Tuesday's Chamber letter did not mention Elizabeth Warren by name, consumer advocates and other policy watchdogs -- who pushed Warren for her current position -- interpreted it as an expression of opposition to her candidacy. The letter urges the Treasury Department not to allow the CFPB to issue any regulations if a permanent director cannot be confirmed by the Senate before the July deadline.
Bank lobbyists who refused to sign off on the Chamber letter refused to criticize Warren in interviews with HuffPost, however.
"Whoever is going to be named to this spot is going to be our regulator, and we're going to have to work with them," American Bankers Association spokesman Peter Garuccio said. "We don't do ourselves any favors by getting ahead of the process."
"We're not taking a position on any individual," ICBA's Verdier said. "We recognize that this is an important job, and she's certainly done an awful lot of outreach."
A new rift seems to have appeared among congressional Republicans debating the possibility of Warren's Senate confirmation, as well. Rep. Randy Neugebauer of Texas has offered measured praise for Warren, and House Financial Services Committee Chairman Spencer Bachus of Alabama told CNBC Tuesday, after waffling a bit, that the Senate may approve Warren were she nominated for permanent director. Sen. Olympia Snowe (R-Maine) praised Warren earlier this year, and other Senate Republicans have lauded Warren to varying degrees.
Washington insiders have interpreted President Barack Obama's long delay in nominating a permanent director as a sign that Warren cannot overcome Republican resistance in the Senate, but her outreach efforts to the congressional GOP appear to be changing the calculus. When asked by CNBC on Tuesday whether Warren could be confirmed by the Senate, Bachus suggested that the "conventional wisdom" may be wrong.
"The odds-on conventional wisdom is she would not, but that's up for the Senate," Bachus told CNBC. "And they would have hearings, and she would be in -- she's a very persuasive individual and she -- she may -- the Senate may approve her nomination."
That sentiment is shared by many consumer groups. "We agree," Lisa Donner, the director of Americans for Financial Reform, a coalition of consumer groups advocating for stronger bank regulation, said in reference to Bachus' comments. "With the work she is doing laying out a compelling vision of standing up for regular people, building a capable and diverse team, engaging with people on all sides of the issues, it gets harder and harder to see what defensible grounds anyone might find for opposing her confirmation."
Zach Carter, THE HUFFINGTON POST