Lisa Madigan (D)
Jon Bruning (R)
WASHINGTON (Legal Newsline)-A group of Democratic state attorneys general are calling on the U.S. Senate to pass legislation to create a national consumer protection watchdog agency, but warning lawmakers not to limit AGs' powers in the process.
Among attorneys general doggedly pushing for the creation of the U.S. Consumer Financial Protection Agency is Lisa Madigan of Illinois, Tom Miller of Iowa and Richard Cordray of Ohio.
They say state authorities and the federal agency ought to work in tandem to protect consumers from frauds and flimflam artists, but say the federal government surely should not go it alone.
Outlining a litany of regulatory failures by the federal government, Madigan told Legal Newsline that she and her counterparts from around the country are best suited to help protect the economy against unfair business practices.
Madigan and her counterparts -- from both parties -- are gathered in Washington this week for the spring meeting of the National Association of Attorneys General.
Democrats' renewed call Monday to create the financial consumer watchdog follow a proposal floated last week by Senate Banking committee Chairman Christopher Dodd, D-Conn., to make the proposed agency part of the U.S. Treasury Department.
"We're hoping for a real consumer financial protection agency whose sole mission it is to protect consumers," Madigan said. "Right now, we can do that individually in our states, but those efforts vary," given states' budget issues and AG offices' legal resources.
Calling for concurrent jurisdiction of consumer protection laws, she said efforts by state attorneys general independent of existing federal banking regulators such as the U.S. Securities and Exchange Commission, Office of the Comptroller of the Currency, the Federal Reserve and the U.S. Treasury Department.
"We need to make sure the states are still empowered to do their work," she said, noting that that in the past nine years federal consumer protection authorities have made 11 enforcement cases against predatory lenders, while state AGs have filed more than 8,000 such cases.
Madigan said the federal government's efforts to protect consumers have stopped at preserving the "safety and soundness" of the nation's financial and banking industry.
But on protecting individuals, she said: "Federal banking regulators have a track record that is nothing short of dismal, and we've got to make sure the feds are finally on the beat. Ripping people off is not a sustainable business model."
Miller, the longtime Iowa attorney general, said as the Senate considers creating the agency they should keep in mind the interests of their constituents, and not those of powerful Washington lobbying groups.
"The senators have to ask themselves: What side are you on? The side of the public or the side of the big banks?" Miller said.
For his part, Ohio Attorney General Richard Cordray compared the proposed agency to the Consumer Product Safety Commission, created by Congress in 1972, to keep dangerous products out of the U.S. marketplace.
"What we have now seen in this generation is that financial products can be just as hazardous to the health and safety and well-being of households as other products, and we need protection at the federal level," Cordray said.
Nebraska Attorney General Jon Bruning, a Republican, said his Democratic counterparts are all wrong on the issue.
"Increased layers of regulation would simply make it harder for community banks to create liquidity in the market, and right now small businesses need that liquidity," said Bruning, president of the National Association of Attorneys General and possible U.S. Senate candidate in 2012.
"America won't come out of this recession if small businesses can't thrive," Bruning added.
Speaking at the NAAG convention, Federal Deposit Insurance Corp. Chairwoman Sheila Bair, a Republican, said a federal financial watchgdog would be good for consumers.
"I don't think we've done a good job protecting consumers in financial services," said Bair, an independednt regulator appointed by President George W. Bush to a five-year term in 2006 to oversee the nation's banks.
Creation of a freestanding federal consumer protection agency has been one of the top domestic priorities of President Barack Obama. Legislation to do so passed the House in December on a mostly party-line vote, with no Republicans supporting the plan and even some Democrats opposing.
House Financial Services Committee Chairman Barney Frank, D-Mass., introduced the legislation following the near-collapse of the financial system last year. The proposal is outlined in H.R. 3126.
In addition to setting up the new agency, the 1,279-page Wall Street Reform and Consumer Protection Act also imposes restrictions on the over-the-counter derivatives market and establishes a system for dissolving foundering financial firms.
In a letter to congressional leaders this fall, 40 state attorneys general said the federal government should not preempt state laws aimed at protecting consumers from frauds and abuses, particularly in the enforcement of state banking and mortgage foreclosure laws, if lawmakers create the new agency.
"Rather than limiting the states' role in consumer financial protection, as some have advocated," the letter said, "we believe Congress should encourage an active and effective partnership between the states and federal financial regulatory agencies to the ultimate benefit of all consumers."