Business for Shared Prosperity

By Gary Weiss
Portfolio, Feb 16, 2010
Plans for a consumer financial watchdog agency are in danger of going down in flames.

President Obama’s financial market reform proposals are getting what was known in the Cold War as the “salami” treatment. That’s the name that used to be given to Soviet negotiating tactics, which whittled down the other side piece by piece. So it is with the centerpiece of the market reform plan, a proposed Consumer Financial Protection Agency that would protect the public from unfair Wall Street practices.

Corporate lobbyists have been wielding their knives since the CFPA was proposed last year, and they may be getting their way. Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, is going back to the drawing board, and the CFPA may be sacrificed. If so that would be a victory for Wall Street lobbyists and the U.S. Chamber of Commerce, which have been fighting the consumer agency as if it were the modern-day embodiment of the Comintern. That’s to be expected. The Street and the Chamber have long been dogged opponents of anything that would help consumers and investors.

What makes the Chamber’s opposition especially potent—and disagreeable— is that it is purporting to represent the interests of small business. In September, the Chamber launched an ad campaign. One newspaper ad said, "Virtually every business that extends credit to American consumers would be affected—even the local butcher and the credit he extends to his customers."

The word credit is especially effective and evocative, because small businesses, like the consumers they serve, are among the hardest hit by the continual tight credit market. But the Chamber doesn’t want to do anything about that—such as by requiring that recipients of TARP funding make loans to creditworthy small businesses and consumers.

Instead, this business-lobbying group is continuing its longtime goal of quashing effective regulation. Note that its propaganda is straight out of the hard-right playbook: that the consumer agency would be a kind of Big Brother, reaching its claws into the ledger book the local butcher uses to record the lamb chops he sells on credit. Now, personally I don’t know of any butchers that sell on credit nowadays—our neighborhood butcher, Mr. Glucksman, used to give my mother credit, but that was a long time ago—and I doubt that many people do either. Even if they did, this is a bogus argument.

The Chamber is seizing on some sweeping language in the proposal (see page 14) and in Barney Frank’s legislation that would create the CFPA, such as that the new agency would have “supervisory and enforcement authority and jurisdiction over all persons covered by the statutes that it implements, including both insured depositories and the range of other firms not previously subject to comprehensive federal supervision.”

But the consumer agency is aimed squarely at major credit issuers, not neighborhood merchants: “We propose to create a single primary federal consumer protection supervisor to protect consumers of credit, savings, payment, and other consumer financial products and services, and to regulate providers of such products and services,” says the administration’s initial overview of the agency.

n a position paper on the issue, the Chamber sets forth a somewhat different scenario than it offered up in its newspaper advertising. The CFPA, it argues, would have such a terrible effect on the credit-granting industry that entrepreneurs and small business would go begging, says the Chamber. “It does not go too far to suggest that the CFPA Act of 2009 could deny the credit that garage-based entrepreneurs need to create the next Apple or Hewlett Packard,” says the Chamber.

In other words, if banks are prevented from abusing customers, they may pick up their marbles and…do what? Transfer their operations to Tahiti? That sounds an awful lot like the quasi-extortionate line of reasoning that Wall Street firms and hedge funds always use whenever effective regulation is proposed. Fortunately, there is pushback to that old canard.

Two small business groups, the American Sustainable Business Council and Business For Shared Prosperity, have begun to organize to keep the CFPA alive. The former has 200 signatories on a letter supporting the CFPA from a small-business standpoint, and Shared Prosperity already has a long list of backers on a petition, commenced last week, favoring creation of the CFPA, including Morgot Dorfman, CEO of the U.S. Women’s Chamber of Commerce.

These small businesspeople and entrepreneurs are backing the consumer agency for a reason that seems ludicrously simple in light of recent events, but seems to already have been forgotten. Had this agency been in existence during the housing bubble, there would have been a government agency with the power—and presumably the motivation—to put a stop to the predatory lending practices that preyed on consumers, and which were the raw materials for the pernicious financial products that were the proximate cause of the financial crisis.

"CFPA would raise consumer-protection standards for all types of credit and ensure that small-business owners are protected from unfair and deceptive credit options," says the ASBC. "Special interests lobbying against the proposed Consumer Financial Protection Agency don't speak for the business community," said one St. Louis entrepreneur who has joined the Business for Shared Prosperity petition drive.

No, they don’t. The question is whether Congress will have the gumption to stand up to a powerful big-business pressure group on an issue of such vital importance. Don’t hold your breath—but don’t give up hope, either.

Copyright Portfolio 2010

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