Consumer Law

FDIC Chair Speaks Out Against Federal Preemption of Consumer Laws

By Deepak Gupta

by Deepak Gupta

 FDIC chairman Sheila Bair says that, to protect consumers from aggressive lending practices, Congress should consider "curtailing" the powers of federal banking regulators to preempt state consumer protection laws.  In testimony submitted to the Senate Banking Committee last week, Bair said federal preemption had previously been seen as a way to improve efficiencies for federally chartered banks and lower costs for consumers. "While that may have been true in the short run, it has now become clear that abrogating sound state laws, particularly consumer protection laws, created an opportunity for regulatory arbitrage that frankly resulted in a 'race-to-the-bottom' mentality," she said. The Comptroller of the Currency and Office of Thrift Supervision routinely preempted state predatory lending laws during the subprime lending boom. (For an overview, see these articles by co-blogger Chris Peterson.) The FDIC chairman said setting a "floor" for consumer protection, based on state and federal laws, would be better than current system of establishing a "ceiling" at the federal level. She suggested that Congress could use a newly proposed financial products safety commission to establish the appropriate floor for consumer protection.  It's refreshing to see at least one federal banking regulator talking sense about this issue.

Full post as published by CL&P Blog on March 23, 2009 (boomark / email).