HR 4173: What's In, What's Out

On Friday December 11, the House of Representatives passed historic legislation to reform the nation’s financial system.  The “Wall Street Reform and Consumer Protection Act of 2009” will next be addressed by the Senate.  (See how your Representative voted on the Act here.)

The Act will create a Consumer Financial Protection Agency (CFPA) which AFFIL, AFR and our Partners have been strongly supporting.  The CFPA was almost stricken from the legislation, however. An amendment from Representative Walt Minnick (D-Idaho) which would have removed it entirely was narrowly defeated by only 15 votes.  (You can see how your Representative voted on the Minnick amendment here.)

More good news is that the CFPA will cover private student loans.  However, it will not cover auto dealerships.  As Demos puts it:  “we look to the Senate now to close the controversial auto dealer loan loophole. This poorly-considered exemption would allow documented predatory practices to flourish in a market as large as credit cards. ”  Lastly, we hope the Senate version of the legislation continues to give the CFPA jurisdiction over the Community Reinvestment Act (CRA).

As far as provisions to rein in Wall Street, we hope the Act is strengthend in the Senate.  Here is how our friends at AFR put it:

For too long these markets have operated in secrecy and the provisions in this bill do too little to change that. The legislation does make important strides in regulating private equity and hedge funds, but moving forward we must do more cover both funds AND their advisors, and to include venture capital in these new regulations.  We will work to shine daylight on the full range of the shadow markets as the bill moves to the Senate.

The Act gives the government strong resolution authority over failed large financial institutions– an essential step to prevent future TARP-style bailouts.  But the Act must be improved by placing that power in the hands of a systemic risk regulator that is fully public and accountable.  Americans for Financial Reform urges this power be given to an agency governed by a council of regulators, but if the Federal Reserve is given this role it must be reformed by removing the banks themselves from the governance of Federal Reserve Banks.  Going forward, we need to do more to keep institutions from becoming too big and too interconnected to fail before they threaten to bring down the whole financial system.

Despite the lessons of the financial meltdown, and the vast taxpayer funded bailout, Wall Street has continued to oppose financial reform, and to spend vast resources doing so.  The status quo has cost trillions of dollars in taxpayer funds, and in lost homes and savings, and it has cost millions of jobs. But it has meant untold billions for a very few institutions and individuals, and they are fighting to preserve it. We cannot let them get away with it.