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Why the OCC Can't Be Relied on for Consumer Protection

posted by Adam Levitin

The OCC is up to its old tricks. It doesn't matter how bad things are out there for consumers--one can always count on the OCC to stand up against any attempt to regulate the consumer lending practices of national banks.

The OCC's latest shande is its opposition to the Federal Reserve's proposed expansion of Regulation AA, which defines and bans certain unfair and deceptive acts and practices (UDAP). The OCC's response, is perhaps the best illustration of its complete regulatory capture--the OCC is objecting to the proposed Regs because it is concerned that they will hurt bank safety-and-soundness, and constrict lending (which it claims is bad for consumers).

Somehow the OCC's parallel agencies--the OTS and NCUA, which regulate federal thrifts and credit unions, haven't been overwhelmed by the same concerns, as they have proposed parallel UDAP regulations to the Fed's. It seems that the OCC doesn't understand that UDAP regulations are about consumer protection, not safety-and-soundness. But, then it is hard to think of a federal agency that is more in the thrall of the entities it "regulates."

To be sure, the Fed has hardly been a bastion of consumer protection historically, and it only acted now under the threat of Congressional action and jurisdiction stripping, and the proposed Reg AA amendments do not go far enough. (The comments that Katie Porter and I submitted to the Fed on the proposed reg that detail this are unfortunately not up on the Fed's website, but then the Fed was deluged with 65,000 comments or so...) Nonetheless, the Fed, OTS, and NCUA have gotten the message from Congress that it is time to clean up consumer lending. It seems like OCC never got that memo.

Of course, the Comptroller argues that the regulations are bad for consumers because they will reduce credit availability. We can't be sure that they will have that effect (because the banks have never shown any evidence), and even if they do, that might not be such a bad thing--it was a glut of easy credit that led to the mortgage bubble. But the Comptroller's real concern is that the proposed regulations will hurt banks--that is they will reduce bank profits and hence safety-and-soundness. Not only does this underscore the essential conflict between consumer protection and safety-and-soundness--abusive practices are often very profitable. It also points to the chutzpah of the OCC's argument: had the OCC done a better job at restraining out-of-control mortgage lending practices, banks would be in a much stronger financial shape now, so there shouldn't be any worries about the impact of credit card lending regulations. And ultimately, if the only way a bank can make a profit is to engage in abusive consumer lending practices, that bank should be out of business. Somehow, though, I suspect that credit card lenders will still manage to turn a healthy profit regardless of the regulations.

All of this points to the need to reorganize consumer protection in financial services. Chartering and safety-and-soundness regulation need to be separated from consumer protection. This could be done either by restoring states' consumer protection powers in the financial services context by putting consumer protection in financial services into a single federal agency that does not have conflicting missions--either the FTC or a new consumer financial products safety commission.


Personal experience dealing with both the FTC and the OCC as a lowly "consumer" tell me that a new consumer commission would be the better way to go. If I remember correctly, John Edwards had a fairly decent program fleshed out in his campaign platform. The FTC will not take action on behalf of individual consumers - I've got that in writing around here somewhere. They need massive numbers of complaints in order to take action. And even then there is no guarantee that appropriate action will be taken on behalf of consumers. The FTC allowed the original USA/Curry v. Fairbanks settlement in '03/'04 AND the modified stipulations in '07. In between that time frame, I believe they "investigated" EMC Mortgage once. Last I heard, they are "investigating" EMC again. EMC is just as bad as Fairbanks/SPS was/is and if the FTC got USA/Curry wrong (which they did), there is no reason to think that they will get it right with EMC, Countrywide, Ameriquest, Litton, Ocwen or any other financially tied entity. The FTC's Joel Winston is on tape saying that Fairbanks/SPS **broke the law** and yet they were allowed to settle "without admitting any wrongdoing". That phrase needs to be stricken from the English language as well. Accountability and consequence need to come back into vogue in order to staunch the flow of corporate/white collar crime in this country.

Again, based solely on personal experience, the OCC simply refuses to either investigate or control the entities over whom it has jurisdiction. I think I've got that in writing around here somewhere as well.

In addition to a "new" consumer regulatory agency, I'd like to see a roll back of the fed preemptions of state level banking regulations. There simply is no good reason why a bank should suddenly become immune to state level regulation simply by adding "N.A." or "FSB" to their title. That's basically the financial equivalent of diplomatic immunity.

We'll have to wait until 2009, and hope that the new folks in charge (whomever they might be) will abandon the "fox in the henhouse" approach to regulation that we have all been witness to over the last 8 years.

HIDDEN CREDIT CARD FEES is also an unfair practice between these groups and credit card companies. FEES that CONSUMERS DO NOT KNOW ABOUT.

Video (30 sec) http://www.youtube.com/watch?v=6CehJarAIP8

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