One of the bigger sticking points in the Financial Reform debate is the establishment of a badly needed consumer protection agency for the finance industry. If I buy a toaster oven that doesn’t work properly and the manufacturer refuses to take care of the problem I have an I can complain to. If I sign on to a new credit card company and I fail to see a clause on page 12 of the small print that gives the issuer the right to raise my rates at will, negating any other protections in the contract (and they do this sort of thing) I have no agency to complain to. I should have just read all the small print.
For obvious reasons the financial industry doesn’t like the idea of such an agency one little bit. They realize it is inevitable in one form or another so their preference is to give it as few teeth as possible and to open loopholes all over the place. This has their lobbyists scurrying all over Capitol Hill with a heightened sense of urgency. They have their supporters, mostly but not entirely made up of Republicans. Sen. Selby (R-AL) and minority leader on the Banking subcommittee has duly gone to bat for the industry with a lobby written amendment that will effectively retain the status quo at best or even weaken current controls at worst.
Shelby’s amendment is remarkable in that it not only gives a bank regulator veto power over the new consumer division’s rulemaking authority, but it prevents the division from enforcing consumer protection rules against almost the entire financial system. Commercial banks, investment banks, payday lenders, auto dealers, check cashers, and non-banks that deal in products other than mortgages (such as AIG) would all be exempt from the division’s enforcement. I'm not sure the amendment applies to anyone.
The current system allows Federal Bank regulators to override more stringent consumer protections laws that States enact. States like Georgia and New Jersey tried to reel in predatory subprime lending in 2002 and 2003, but federal bank regulators stopped them in their tracks.
The current proposed bill would force regulators to preempt state law on a case-by-case basis (which still isn’t great), while the Republican alternative would grant the banks blanket preemption, rendering every state’s consumer protection efforts moot henceforth. It seems odd that the party so concerned with states’ rights would advocate nullifying state laws before they’re even written.
One of the key tenets of Republican/Conservative philosophy is the idea of States Rights. In the new world of the right even core principles only apply when it suits them.