Senate vote increases fed's power over states on consumer financial protections

The Senate moved Tuesday to shore up the federal government’s power to pre-empt states on consumer financial protections.

In an 80-18 vote, the Senate approved an amendment offered by Sen. Tom Carper (D-Del.) that reflected a deal struck with Senate Banking Committee Chairman Chris Dodd (D-Conn.). 

Lawmakers had clashed for weeks on how to balance state and federal consumer protection powers in the Wall Street overhaul bill under debate in the Senate. The issue split Democrats in particular.

Dodd, Carper and other Democrats agreed to give state officials some new enforcement authorities on consumer regulations, but they also scaled back the powers somewhat from the original bill. They also agreed to preserve some federal preemption power.

“This is really striking a balance,” Dodd said.

Carper said the agreement would improve the powers of a new federal consumer protection office that would be housed at the Federal Reserve.

“Let’s make sure the bureau has the resources it needs to enforce the rules,” Carper said.

Centrist Democrats pushed to retain current law, giving the federal government power to pre-empt states. The White House, other Democrats and consumer advocacy groups pushed for more than a year to allow state attorneys general and other state officials to pursue tougher regulations than those set by the federal government.

They argued that the federal government has too often overridden tougher state regulations. The financial industry and supporters of federal pre-emption say it is an important tool to ensure national standards and avoid conflicting state regulations.

Under the agreement, state attorneys general would be able to enforce consumer regulations against any state-licensed or chartered bank. State officials would also have limited powers to enforce regulations on national banks that are prescribed by the new consumer office.

The amendment aims to limit state officials from pursuing class-action lawsuits against national banks. It also seeks to limit state attorneys general from entering a separate state to bring charges against a national bank.

The amendment would also change the Wall Street overhaul bill by removing a requirement that the federal government, prior to pre-empting states, must find in current federal law a substantive standard that already applies.

“The Carper Amendment represents a significant improvement over the status quo and would help to ensure that there are enough cops on the beat to enforce important new federal protections,” said Andrew Williams, Treasury Department spokesman. “We look forward to working with Congress to get the strongest state protections going forward.”

Carper was joined by Democratic Sens. Tim Johnson (S.D.), Mark Warner (Va.) and Evan Bayh (Ind.) on the amendment. Republicans strongly favored retaining current pre-emption powers.

Banks lobbied aggressively in favor of retaining current pre-emption standards.

The “Consumer Bankers Association supports efforts to improve consumer protection, but eliminating current federal pre-emption standards is not the right approach,” said Richard Hunt, head of the association.

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