A Fighting Chance

Not one: The agencies are as follows: (1) The Office of the Comptroller of the Currency (OCC), whose primary mission is to charter, regulate, and supervise all national banks and savings associations, to ensure the safety and soundness of chartered institutions, and to ensure their compliance with laws requiring fair treatment of customers and fair access to credit and financial products; (2) the Office of Thrift Supervision (OTS), whose primary mission, before it was absorbed by the OCC in 2011, was to supervise savings associations and their holding companies, to ensure their safety and soundness, to ensure their compliance with consumer laws, and to encourage a competitive industry; (3) the National Credit Union Administration (NCUA), whose primary mission is to provide safety and soundness in the credit union system through regulation and supervision; (4) the Federal Reserve Board (the Fed), whose primary mission is, in its words, “to foster the stability, integrity, and efficiency of the nation’s monetary, financial, and payment systems so as to promote optimal macroeconomic performance”; (5) the Federal Deposit Insurance Corporation (FDIC), whose primary mission is to maintain confidence in the financial system, by insuring deposits, supervising banks for safety, soundness, and consumer protection, and managing receiverships of failed banks; (6) the Department of Housing and Urban Development (HUD), whose primary mission is, in its words, “to create strong, sustainable, inclusive communities and quality affordable homes for all”; and (7) the Federal Trade Commission (FTC), whose primary mission is to prevent anticompetitive, unfair, and deceptive business practices and to enhance consumer choice and public understanding of the competitive process.

other to be the friendliest, which shifted their role from watchdog to lapdog: Before 2010, the responsibility for consumer financial protection was shared among seven principal agencies, and the scattered responsibility created an opportunity for regulatory arbitrage. The banking regulators received their funding from chartering fees paid by those they regulated. This had a particularly corrupting influence on the two main banking regulators, OCC and OTC, who were in head-to-head competition for banking business. When one banking regulator adopted more permissive regulations, the banks either moved their charters to this agency or threatened to move. That dynamic put pressure on all the competing regulators to “race to the bottom” by adopting the most permissive regulations to keep their chartering fees and remain relevant. There was one regulator, the Federal Trade Commission, that had consumer protection as a primary responsibility, but its consumer protection jurisdiction didn’t extend to banking entities, leaving a whole host of consumer financial products out of its purview. See Adam J. Levitin, “Hydraulic Regulation: Regulating Credit Markets Upstream,” Yale Journal on Regulation 26 (2009): 143, 156–57.





As one example, Countrywide Financial, one of the worst abusers in the lead-up to the crisis, responded to increased regulatory pressure from the Fed and the OCC by re-chartering with OTS, after OTS promised more “flexible” oversight of its mortgage lending practices. Binyamin Appelbaum and Ellen Nakashima, “Banking Regulator Played Advocate over Enforcer,” Washington Post, November 23, 2008.

many of them were financed by the big banks: For example, giants Wells Fargo, U.S. Bank, Fifth Third Bank, and Regions Bank offer payday loans. Liz Weston, “How Big Banks Offer Payday Loans,” MSN Money, April 19, 2013.

and, yes, toasters that catch fire: The Consumer Product Safety Commission regulates the sale and manufacture of thousands of consumer products, ranging from kids’ toys to all-terrain vehicles and everything in between. According to the agency’s estimates, by promulgating new regulations, initiating recalls of faulty products, and partnering with industry in prevention efforts, more than $1 trillion is saved every year by avoiding costs that result from accidents. See “About CPSC,” CPSC.gov, http://www.cpsc.gov/About-CPSC/. See also “U.S. Consumer Safety Commission Strategic Plan,” http://www.cpsc.gov//PageFiles/123374/2011strategic.pdf.

a lot of terrible injuries: See http://www.cpsc.gov/PageFiles/122643/05perfrpt.pdf. “For example, our work in reducing product-related injuries and deaths from cigarette lighters, cribs and baby walkers alone saves $2.6 billion annually in total societal costs.”

eager to take on the fight for the agency in the House: Congressman Delahunt and Senator Durbin had introduced a similar bill on October 3, 2008, called the Consumer Credit Safety Commission Act of 2008, H.R. 7258 and S. 3629. The bill created a commission that would have the responsibility to promulgate new consumer safety rules banning abusive, fraudulent, and unfair practices; requiring adequate information and warnings on consumer credit products; and enforcing those provisions.

and I was invited: See Senator Schumer’s statement: http://www.schumer.senate.gov/Newsroom/record.cfm?id=309349&&year=2009&. See also “U.S. Lawmakers Propose Financial Products Watchdog,” Reuters, March 10, 2009. Also Ryan Grim, “Financial Product Safety Commission: Dems Want Mortgages Regulated Like Toys, Drugs,” Huffington Post, April 10, 2009.

somehow you’re going to be protected: For the transcript of the president’s Jay Leno interview, see “President Barack Obama on ‘The Tonight Show with Jay Leno,’” New York Times, March 19, 2009.

in 2007 by the Tobin Project: The Tobin Project is an independent, nonprofit research group that was founded by Harvard Business School professor David Moss. It supports scholarly research and helps link people in government with a community of scholars across various fields who are working on significant policy issues. http://www.tobinproject.org/about.