U.S. Senator Richard Shelby (R-AL.), today made the following statement on the floor of the U.S. Senate regarding the Republican amendment to the financial reform bill that will strengthen consumer protections without unnecessarily expanding government or burdening Main Street businesses.
The text of Senator Shelby’s statement is below:
“I rise today to discuss the amendment that Senate Republicans are offering to greatly improve consumer financial protection.
“This amendment recognizes that our existing financial regulatory system fails to adequately provide consumer protection. Our system is broke, and it needs fixing.
“The recent financial crisis has revealed that our financial regulators were asleep at the switch and had neglected to uphold their basic responsibilities for consumer protection.
“Far too often, our regulators were more concerned about pleasing the entities they regulated than looking out for consumers. It is clear that we need to refocus the priorities of our financial regulators and ensure that consumer protection gets the attention it deserves.
“Make no mistake. Republicans want to strengthen consumer protection.
“We need to make sure that consumers get clear and understandable disclosure so that they can make good decisions.
“We need to make sure that regulators have sufficient authority to combat fraudulent practices. We also need to make sure that our consumer protection laws and regulations keep up with changes in our dynamic and innovative marketplace.
“Any changes to consumer protection, however, need to reflect that consumer protection does not stand in isolation. It is inherently linked with safety and soundness regulation.
“This is most dramatically illustrated by the fact that an ill-conceived consumer protection law, such as allowing for no down payments, could cause banks to fail.
“Given that taxpayers are ultimately on the hook for bank failures, it would be irresponsible not to require regulators to consider the impact proposed consumer protections could have on the deposit insurance fund.
“After all, one of the most important consumer protections is a healthy financial system, where financial institutions are able to keep long-term commitments to consumers, like annuities, insurance, and retirement funds.
“The amendment we are proposing embodies this approach. It would put the FDIC in charge of writing consumer protection regulations. That responsibility currently rests with the Fed.
“As a prudential regulator, the FDIC has the experience necessary to ensure that the right balance is struck between consumer protection and safety and soundness.
“To raise the status of consumer protection, a new Division will be established at the FDIC. The Division will be led by a presidentially-appointed and Senate-confirmed Director.
“The Director will serve a term of four years and will be required to testify before Congress at least twice a year. This will help ensure that regulators are held accountable for their actions on consumer protection.
“In addition, this amendment does not disrupt the century and a half of precedent on preemption with respect to national banks.
“We should be very cautious about allowing national banks to be regulated by 50 different states and opening up the door to needless state litigation that only enriches trial lawyers and raises costs to consumers.
“The Republican amendment also grants the FDIC primary supervision and enforcement authority over large non-bank mortgage originators, and other financial services providers that have violated consumer protection statutes.
“This will give the FDIC broad authority to clamp down on the worst offenders of our consumer protection laws without needlessly subjecting law-abiding businesses to expensive regulation.
“The Republican approach to consumer protection sharply contrasts with the approach of the Dodd bill.
“Under the Dodd bill, the Consumer Financial Protection Bureau would issue rules without considering their impact on the safety and soundness of financial institutions.
“Need I remind my colleagues that this is the same regulatory model that produced the fiascos at Fannie and Freddie. In that case, HUD wrote rules on their housing goals and underwriting standards, while OFHEO regulated them for safety and soundness.
“Do we need a better example of the foolishness of divorcing consumer protection from safety and soundness?
“How did that regulatory model help consumers? It certainly left them with a huge tax bill to cover the government bailout.
“An examination of the powers and size of the Bureau established by the Dodd bill shows further how the Republican approach differs from the approach advocated by the Obama Administration and the Democrats.
“They start with the assumption that small businesses are, in President Obama’s words, ‘bilking people’ and that heavy handed regulations and an extensive bureaucracy are the only ways to ensure that small businesses do not take advantage of their consumers.
“Mr. President, I do not believe that the tens of thousands of small businesses – the florists, the retailers, the dentists, the auto dealers – who fall within the regulatory reach of their new bureaucracy are ‘bilking’ people. I also know that these entities had nothing to do with the financial crisis.
“Unfortunately, the Dodd bill would create a massive new bureaucracy with unprecedented powers to regulate small businesses and consumers.
“The Consumer Financial Protection Bureau could dictate exactly what forms business must use, who they provide services to, and how they sell their products.
“Control over American businesses would shift further from entrepreneurs to bureaucrats in Washington.
“Perhaps the most troubling aspect of their approach is that it assumes that consumers need benevolent bureaucrats to make decisions for them. In order to make that happen, the Dodd bill authorizes the new consumer agency to collect any information it desires.
“Small businesses across this country fear the massive and potentially very intrusive new bureaucracy created under the rubric of consumer protection. They have every right to be afraid.
“This massive new government bureaucracy has the power to place individuals under oath and demand information about their personal financial affairs.
“The new bureaucracy is also required to report to the IRS any information it gets that it believes may be evidence of tax evasion.
“Why does their new bureaucracy need these incredible powers? Because their bill envisions the Bureau analyzing and monitoring Americans’ behavior and then issuing regulations to stop them from doing things the bureaucrats deem ‘irrational’ or ‘inappropriate.’
“Just read the writings of the Assistant Secretary of Treasury for Financial Institutions, one of the chief architects of this expansive new bureaucracy. He has written how ‘regulating . . . appropriately is difficult and requires substantial sophistication by regulators, including psychological insight.’
“Let me translate this academic jargon.
“He is saying that all-knowing regulators should be empowered to make decisions for consumers because benevolent regulators are the only ones who possess the right ‘psychological’ mind set to do things ‘appropriately.’
“Regulators are wise and should be heeded; consumers are foolish and should do as they are told.
Mr. President, the architects of this massive new bureaucracy have long argued for a consumer bureaucracy with the right ‘culture.’
“Whether that ‘culture’ focuses on consumer protection and a safe and sound banking system or it becomes a way for community organizers and groups like ACORN to grab federal resources is left wide open.
“One of the strongest proponents for the new consumer bureaucracy has been Treasury’s Assistant Secretary for Financial Institutions.
“Mr. President, allow me to read into the record a couple of quotes from a paper entitled ‘Behaviorally Informed Financial Services Regulation’ co-authored by the Assistant Secretary Barr in October of 2008.
“The Secretary writes, ‘Because people are fallible and easily misled, transparency does not always pay off...’
“He writes that: ‘...regulatory choice ought to be analyzed according to the market’s stance towards human fallibility.’
“On regulation, he writes that: ‘Product regulation would also reduce cognitive and emotional pressures related to potentially bad decision-making by reducing the number of choices . . .’
“Yes, Mr. President, the Administration’s chief advocate believes that benevolent regulators need to reduce choices for the consumer so that they can be protected from bad decision making and their own inherent fallibility.
“He also opines on the topic of disclosures where he states that: ‘[D]isclosures are geared towards influencing the intention of the borrower to change his behavior; however, even if the disclosure succeeds in changing the borrower’s intentions, we know that there is often a large gap between intention and action.’
“Mr. President, I believe that regulators need to ensure that consumers have the information they need to make their own decisions based on their needs and circumstances.
“The proponents of behavioral economics believe, however, that regulators need to influence peoples’ intentions and change their behavior so that they make decisions that the regulator deems appropriate for them. As I have said before, this is the Nanny State at its worst.
“Finally, Mr. President, he writes of a proposal on late fees charged by financial service providers.
“He writes that: ‘Under [his] proposal, firms could deter consumers from paying late or going over their credit card limits with whatever fees they deemed appropriate, but the bulk of such fees would be placed in a public trust to be used for financial education and assistance to troubled borrowers.’
“The translation, Mr. President, is that behavioral economists not only believe that they are best positioned to make decisions for us, but they are also best positioned to decide how private companies spend their money.
“Needless to say, this is a disturbing perspective, but it does reveal just how much the Obama Administration wants to empower bureaucrats.
“We should remember that the failure of our existing regulators, primarily the Federal Reserve, to properly enforce consumer protections helped cause the crisis. Yet, the Dodd bill’s response is to create a bigger bureaucracy and hire more bureaucrats at the Fed.
“In contrast, the Republican amendment would make the changes and improvements that we all can agree need to be done, but would do so in a more focused and prudent manner.
“The expansive reach of the Dodd bill means that the new Bureau is going to be expensive. The budget for the Bureau is approximately $650 million in new taxpayer costs, funded Argentina-style by tapping the central bank’s money printing powers.
“In comparison, the budget for the Office of the Comptroller of the Currency, our national bank regulator, is currently $750 million, and that agency does both consumer protection and prudential supervision.
“Under the Republican plan, industry, not taxpayers, would pay the costs of consumer protection.
“Despite giving the Bureau a huge budget and vast powers, the Dodd bill fails to take any reasonable steps to hold the Bureau accountable.
“The Bureau receives all of its funding from the Federal Reserve, beyond both Congressional and executive oversight.
“The Bureau has complete discretion on how it spends its budget, allowing it to devise programs for backdoor funding of special interest groups like ACORN and other liberal activist groups.
“The more we learn about the Dodd bill’s approach to consumer protection, the more I believe the Republican approach makes more sense and strikes the right balance.
“The Republican amendment wisely places consumer protection in a financial regulator, the FDIC, but enhances the status of consumer protection by creating a new division of consumer protection.
“It holds regulators accountable and ensures that repeat-violators of consumer protection laws face stiffer penalties and regulation.
“The Republican amendment avoids creating costly new bureaucracies and imposing unnecessary costs on small businesses that had nothing to do with the crisis.
“Mr. President, we all agree that consumer protection needs to be modernized and given more attention by our regulators.
“I believe the Republican approach does this. And, it does so without building the expansive and expensive bureaucracy contained in the Dodd bill.
“Most importantly, the Republican approach ensures that consumers are protected, but that they, not bureaucrats, are ultimately the ones making decisions for themselves.
“Mr. President, I have heard from productive American companies – from tractor manufacturers to beer brewers – from motorcycle manufacturers to public utilities that provide heating fuel to your home – and they strongly oppose this bill because it will increase their operational and risk management.
“I have heard small responsible business owners, who offer their customers the convenience of installment payments, express serious concerns about the potential for an out-of-control consumer bureaucracy that the Dodd bill creates.
“Although the bill’s supporters have and will argue that the fears are unfounded because the bill says that merchants not engaged ‘significantly’ in offering consumer financial services are excluded from the new consumer regulatory bureaucracy.
“The bill does not, however, define what the word ‘significantly’ means – leaving that to the discretion of the benevolent bureaucrats.
“The supporters of this massive new government agency trust the bureaucrats. Mr. President, I trust American small business owners.”