There was H.R. 37 – the Eleven Bill Wall Street Wish List, which passed the U.S. House of Representatives, a bill of, for, and by the Wall Street Wonders who brought us the Crash of ‘07-08. On January 13, 2015 the House approved H.R. 185, another De-regulation Bill from those same awesome people who burdened us with bailouts. The bill has a lovely name, the “Regulatory Accountability Act of 2015,” and was introduced by Virginia’s own ultra-conservative Representative Bob Goodlatte (R-VA) The miserable measure passed on a 250-175 vote [rc 28] with Nevada Representatives Amodei (R-NV2), Heck (R-NV3) and Hardy (R-NV, Bundy Ranch) all voting in favor of it while Representative Titus (D-NV1) voted No.
What was it that the three Nevada Representatives found so appealing in the bill? Gee Whiz folks, friends, and neighbors, don’t you know this bill will FREE us from those burdensome regulations on Clean Water, Clean Air, and Stable Financial Markets! In short, H.R. 185 is a bill of the polluters and exploiters, by the exploiters and polluters, and for the exploiters and polluters. And, it would be bad enough if we ended up drinking the dregs from phosphates and breathing smog – but this is also another example of the financial sector wanting to roll back regulations protecting consumers, investors, and ordinary working citizens.
The bottom line is summarized by the Center for Effective Government as follows:
“This legislation represents nothing more than a backdoor effort to undermine public protections without having to be on the record opposing implementation of laws the American people support, like the Clean Air Act and Clean Water Act. Instead of improving our system of public protections, the Regulatory Accountability Act would add numerous hurdles and delay to agency efforts to develop new safeguards and give big business even more opportunities to interfere in this process. This would waste government resources that agencies need to achieve their missions.” (Emphasis added)
Most of the attention from opponents of the bill was focused on the environmental issues, and related worker safety regulations. However, this bill also “deregulates” the bankers as well. Before the SEC or the CFPB could issue rules for the protection of investors and citizens the agencies would be required to conduct a manipulated form of cost-benefit analysis concerning the “cost of the rule” for businesses.
The SEC, CFPB or other financial regulator would have to:
“…conduct a cost-benefit analysis for all proposed rules and guidance, as well as any potential alternatives to the proposals or guidance. The bill would also expand the scope of these analyses by requiring agencies to include highly speculative estimates of all “indirect” costs and benefits for each option. Yet the bill does not even define what would qualify as an indirect cost.” [CEG]
But, wait, there’s more:
“The bill would mandate that all federal agencies adopt the “least costly” rule out of all the alternatives considered. The only exception to this default rule is if the agency can demonstrate that the additional benefits to the rule justify the additional costs, although it is unclear what the agency would need to do to satisfy this requirement. Given that Congress has just recently cut agency budgets, agencies with already limited resources and rulemaking timelines may choose to adopt the least costly option when they lack resources to demonstrate that the additional benefits justify adopting a more costly rule.” [CEG]
Notice the two elements which are left vague, (1) the definition of an Indirect Cost; and, (2) the standard by which the Additional Benefit is to be evaluated. How convenient! Are we to assume that if the financial industry can offer some form of sublime speculation and declare that to be an “indirect cost,” then what the Financialists say will be held as Gospel? Are we to assume that no matter what “additional benefit” might accrue for the protection of consumers – if the industry (financial, industrial, manufacturing, etc.) can say it is “unjustified” then we’ll just have to take their word for it?
No, the supporters of the bill will say – We’re not for repealing the Clean Water or Clean Air Acts, or the Dodd Frank Act – we merely want to make it all but impossible for the agencies to implement those laws.
Let’s take a look at a real world example. The Consumer Finance Protection Bureau is proposing a rule concerning pre-paid products.
“[The proposed rules] would close the loopholes in [the prepaid product] market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.”
Sounds reasonable. However, it ranks in the litany of complaints from the American Banker’s Association, an organization still screaming about the ‘unfettered tyranny’ of the Consumer Financial Protection Bureau:
“…prepaid companies would be required to wait 30 days after issuing cards to begin offering their customers credit. That’s making, not implementing law. And the CFPB’s prerogative to unconditionally exempt parties from its rules is absolutism.”
Oh, the horror! There is another side to this story.
“The proposal would require prepaid companies to limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, provide easy and free access to account information, and adhere to credit card protections if a credit product is offered in connection with a prepaid account. The Bureau is also proposing new “Know Before You Owe” prepaid disclosures that would provide consumers with clear information about the costs and risks of prepaid products upfront.
“Consumers are increasingly relying on prepaid products to make purchases and access funds, but they are not guaranteed the same protections or disclosures as traditional bank accounts,” said CFPB Director Richard Cordray. “Our proposal would close the loopholes in this market and ensure prepaid consumers are protected whether they are swiping a card, scanning their smartphone, or sending a payment.” [Consumer Finance] (Emphasis added)
Funny how the American Banker’s Association left out the part wherein consumer losses would be limited in case of loss or theft, and the bank would investigate and resolve errors, and the same credit card protections would apply to prepaid cards, and the card holder could get “clear information about the costs and risks” of holding that card? And, they left out the part in which the protections which apply to plastic would also apply to the pre-loaded Smartphone.
Let’s guess what that “cost benefit analysis” might be, since it’s the bankers who would be running the show. What might be an “indirect” cost to the banks if they had to (1) limit a customer’s losses if his or her pre-loaded Smartphone were lost or stolen? (2) Investigate and resolve errors? Plastic or Electronic? or (3) If they actually had to inform the prospective customer about the costs and risks associated with a pre-loaded card or device?
And our Banker Says: “It is simply too costly, it absolutely can’t be done, it will ruin our bottom line, and deplete our shareholder value! Whatever benefit might redound to the customer – it will never be enough to justify the expense to which we will be put. And besides that “It’s Tyranny!”Really?
And, NO, this isn’t like the EU defining a banana – it’s like requiring the seller of the financial product in question to be upfront about the costs and risks, and to address the issues created by loss and theft, and to investigate and resolve errors. The ABA would have us believe this is about picky details like the URL addresses, and not about basic credit protection services.
There’s one form of direct cost the banker would like to avoid – any infringement on their activities in the secondary market for credit card debt, which is done this way:
“The process of securitizing credit card receivables is very similar to that of securitizing mortgages and other loan obligations. A card issuer sells a group of accounts to a trust, which issues securities backed by those receivables. The card issuer still services the account, but the assets are removed from its balance sheet. This allows the card issuer to issue more accounts and to reduce its capital reserve requirements, the amount of money banks are required by law to hold to do business. This money doesn’t earn interest, so, naturally, the card issuer wants to reduce its required reserves as much as possible. As the cardholders pay on their accounts monthly, most of the money is sent to the trust, which pays the holders of the credit card ABSs interest and principal. The card issuer retains a servicing fee and part of the finance charge as profit, and also includes part of the principal—the seller’s interest.” [TM.com] (Emphasis in original)
Oh, precisely what we want to hear! Right? When the banks securitize their credit card receivables it’s JUST LIKE mortgages and other loan obligations? We’ve seen that movie before and the ending was most unpleasant. Nor are we looking at pittances. When Credit Card Receivables where first securitized in 1987 the total was $2,295.20 million, this climbed to a hefty $52,159.57 million by 2014. [SIFMA download] Little wonder the Bankers of the ABA don’t want anyone treading on their territory and placing any restrictions on to whom they may sell pre-loaded financial products.
So, what would a “cost benefit analysis” yield? If just one customer was reduced from the total of those whose pre-paid (pre-loaded) debt could be securitized – would that be enough to trigger the “NO.” If the amount stemming from the securitization of that customer’s credit was removed would that trigger the “indirect cost” NO? The beauty of leaving the language in H.R. 185 vague is that all costs – no matter how speculative – must be considered, and all “indirect costs” – no matter how small or creative — must drive the regulation of the banking industry. Not, Heaven Forefend, the costs to the consumers when credit cards/pre-loaded phones are lost or stolen, or when disputes cannot be resolved by the consumer without recourse to expensive and protracted litigation?
So, we’d have to ask Representatives Heck, Amodei, and Hardy, is this what you intended – that pre-paid/loaded Smartphone credit line holders do NOT have the right to know, in clear plain old readable English, the costs and risks of holding Corporation X’s credit card? That they do not have a right to know that they have free and easy access to their credit information? That they do not have a reasonable expectation that errors will be corrected and disputes resolved without litigation? Because in voting in favor of H.R. 185 that is exactly what they are saying. (Our thanks and praise to Representative Titus for NOT joining that chorus.)