WASHINGTON (Legal Newsline) - Eight state attorneys general want President Barack Obama to keep in mind their roles in consumer protection as he overhauls the financial regulatory structure.
The eight sent a letter to Obama on Tuesday, urging him to preserve states' ability to enforce consumer protection laws, make sure federal consumer protection laws are the responsibility of an agency that can handle the task and not allow the financial industry to regulate itself.
The letter was signed by California's Jerry Brown, Massachusetts' Martha Coakley, Maryland's Doug Gansler, North Carolina's Roy Cooper, Ohio's Richard Cordray, Illinois' Lisa Madigan, Iowa's Tom Miller and Connecticut's Richard Blumenthal.
"Fundamentally, financial services reform must enable consumer protection agencies to do their jobs," the letter says. "We urge you to make this principle a central tenet of your reform package."
The first argument the attorneys general make is that preemption of their authority undercuts consumer protection, claiming that recent restrictions on states' abilities have been used by federal banking regulators as a selling point in marketing federal bank charters.
"Similarly, insurance lobbyists seeking to reduce consumer protections have sought the creation of a federal insurance charter. In numerous fields, preemption has been used to shield regulated entities from responsibility for their misconduct, ultimately harming American consumers," the letter says.
"Despite the current restrictions on the role of state enforcement, states were the first to investigate the auction rate securities market; states have been the first to bring consumer protection cases against unfair subprime lenders; states uncovered and investigated both the market timing and investment advisor conflicts cases; states discovered and remedied the nationwide excess casualty insurance bid rigging scheme perpetrated by Marsh & McLennan, and states are leading the review of investment bank securitization practices."
Their second argument says a federal agency worried about solvency will drop the consumer protection ball.
"Regulators that have primary responsibility for solvency generally do not make good consumer protection regulators," the letter says.
"The continuation of an independent regulator, like the SEC, that is focused on investor protection at the federal level will be an important counterpart to continued efforts by states to pursue accountability for our investors and consumers.
The last argument says self-regulation is counterproductive.
Delegating more power or direct oversight to (self-regulating organizations_ may, in the current climate, be viewed as permitting the fox to guard the henhouse," the letter says.
"An expansion of self-regulation in lieu of government oversight is a recipe for repeating recent harms, not preventing them."
Every attorney general attached his or her name to a letter to Obama earlier this year, asking him to give states the power to bring consumer protection suits against national banks.
From Legal Newsline: Reach John O'Brien by e-mail at email@example.com.