Centrist senators push for greater federal power in consumer regulations

Four centrist Senate Democrats are leading an effort to modify the Wall Street overhaul bill to give the federal government greater power than states on consumer regulations.

Democratic Sens. Tom Carper (Del.), Mark Warner (Va.), Tim Johnson (S.D.) and Evan Bayh (Ind.) are supporting an amendment that would give federal regulators more power to pre-empt state consumer financial regulations. They are joined by Republican Sens. Bob Corker (Tenn.) and John Ensign (Nev.) on an amendment filed this week.

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“I just think if we’re going to have strong new federal consumer protection rules that they ought to have a chance to work, and there ought to be an ability to have that enforced by the prudential supervisor first,” Warner said on Tuesday. Warner said he hopes changes are made to Senate Banking Committee Chairman Chris Dodd’s (D-Conn.) legislation, which sets up a new Bureau of Consumer Financial Protection at the Federal Reserve.

“There are ways we can improve,” Warner said, referring to the Dodd bill. Carper on Tuesday declined to comment on the issue.

The centrist Democrats’ amendment seeks to limit state attorneys general and state regulators from enforcing consumer regulations on national banks and their subsidiaries. Those are banks or subsidiaries regulated by the Office of the Comptroller of the Currency (OCC), a federal bank regulator. The amendment also removes a requirement in the Dodd bill that the OCC, before pre-empting state rules, must conclude in writing that there is a “substantive standard” in federal law that already applies to the type of regulation under debate.

The balance of state and federal powers is a major issue at the heart of efforts to bolster consumer financial protections. The White House, most congressional Democrats, state attorneys general and consumer advocates during the last year have pushed to allow state officials to pursue tougher regulations than those set at the federal level. The Conference of State Bank Supervisors also supports giving states the ability to push stronger standards.

Supporters of greater state powers say the federal government, particularly since 2004, has too often pre-empted tougher state regulations.
Senate Republicans and the financial industry have supported retaining current law on federal pre-emption. They argue that a patchwork of state regulations would hamper the banking industry in a way that could drive up costs on consumers.

“The Dodd bill would create a patchwork of different laws and give free rein to 50 state attorneys general, which would create endless confusion and litigation,” said Steven Zeisel, vice president and general counsel at the Consumer Bankers Association. “Sen. Carper’s amendment would come closer to doing what the underlying bill claims to do — protect[ing] consumers and maintaining a strong, uniform national banking system.”