There are 13 weeks until Election Day. Many people say this is one of the most important elections in recent history. The talking heads on television focus on the horse race between the candidates, and tell us little about what they would do if elected. Campaign ads are nasty and misleading. Because voters need clear and objective information to make good decisions, the Journal-Courier has agreed to publish “Election Primer 2012", twice weekly factual articles, in which I lay out some of the issues at stake in these elections.
1. Federal Regulation of Banks
I got an official notice from my bank the other day, concerning government regulation of banks, a major issue in the November elections. “Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information.”
“Personal information” includes my Social Security number and credit history, information about my account balances, about payments I make, even about my income. Big US banks can find out what and where we buy, how much we spend every month and how we pay our balances.
Farmers State Bank and Trust, my local bank with local owners for 100 years, chooses not to share any of this financial information with anyone, except where it is necessary to do my business and serve my banking needs. What I do with my bank stays with my bank.
CitiBank, the giant bank which handles my credit card and millions of others, sent me the same notice, but with a different message. CitiBank spreads my personal information all around. They use it to market their own products to me. They also give it out to other financial companies and to their “affiliates”. I can’t stop CitiBank from doing that; it is their legal right by law.
CitiBank also discloses my transactions and account information and credit scores to all kinds of other companies, affiliates and non-affiliates. By law I could limit that sharing, but I have to make a special request.
As the statement from Farmers Bank says, all of those provisions about my financial privacy come from federal laws about banks, a political issue that clearly divides the two parties.
When I visited my bank this week, I noticed a sign about another major element of federal regulation of banks: the Federal Deposit Insurance Corporation guarantees my deposits up to $100,000. In the midst of the last great depression, Congress passed and Franklin Roosevelt signed the Glass-Steagall Act of 1933, the first major federal regulation of banks. That law created the FDIC so that customers at banks which went bankrupt would not lose their savings. Millions of Americans have been rescued from financial disaster by the FDIC.
Glass-Steagall also prohibited commercial banks from simultaneously being investment banks or insurance companies. The Republican Congress in 1999 passed the Gramm–Leach–Bliley Act, which repealed that wall of separation. Most Democrats voted for it, some opposed it, and President Clinton signed it. A special provision that Democrats insisted upon was the basis for the notifications these banks sent me, and thus for my ability to opt out of some sharing, but not all.
Republicans and Democrats are now arguing about more recent federal legislation, the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. Dodd-Frank provided the first federal regulation of hedge funds, limits risky investments by banks, and requires public corporations to allow shareholders to vote on executive compensation every 3 years, among many other complex provisions.
Dodd-Frank also created the Consumer Financial Protection Bureau. Since Republicans took over the House later in 2010, they have tried to prevent the CFPB from coming into existence. The NY Times wrote, “In May 2011, 44 Republican senators signed a letter saying they would refuse to vote on any nominee to lead the bureau. They argued that the agency had too much power.”
During a Congressional recess, President Obama used his executive authority to appoint Richard Cordray as director, so the CFPB could begin work.
Last month the young agency demonstrated what these federal regulations mean for consumers and voters. In the first enforcement action by the CFPB, Capital One Bank, which has clever commercials (“What’s in your wallet?”), but misleading marketing, will have to refund $210 million to its credit-card holders, because it tricked them into buying costly add-on services. According to USA Today, “The bank’s phone-sales operators told customers that services like payment protection and credit monitoring were free or mandatory or offered more benefits than they did.”
At the same time, the CFPB began to investigate the home mortgage process, hoping to make it easier for borrowers to understand the kind of loan they are getting and its cost.
Dodd-Frank was passed by Democrats when they controlled Congress. Nearly every Democrat voted for Dodd-Frank, and nearly every Republican voted against it. In August 2011, Mitt Romney said, “I’d like to repeal Dodd Frank.” In January, he said, “Now, the banks aren’t bad people, they’re just overwhelmed right now.” He called the CFPB the “most powerful and unaccountable bureaucracy in the history of our nation”. While he was in London last week, Romney continued his attack on Dodd-Frank, calling it “unnecessary” and “overly burdensome”.
President Obama and the Democrats defend these laws, and want the CFPB to continue its work.
Every banking transaction you perform is regulated by federal laws. Democrats and Republicans strongly disagree about how much regulation should restrict banks’ behavior.
How do you want your personal information treated by banks who participate in your daily lives? How actively should the government investigate banks who cheat their customers? Your vote matters.
published in the Jacksonville Journal-Courier, August 7, 2012