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Financial Reform - A Little Enforcement Would Be Nice

By Joe Consumer

How to gut financial reform? Let me count the ways.  (Apologies to all PopTort poets for involving Elizabeth Barrett Browning in this mess!)  Of course, the ?battalions of financial industry lobbyists descending on Capitol Hill,? as the President put it, already have.  And you knew their extreme fixation on preventing legal enforcement through the courts was bound to spill over into this fight.  So it has.

This weekend, as Senators try to figure out whether Senator Richard Shelby (R-AL ) will prevent the bill from even being debated (!), some key provisions may be ?bargained out.?  What?s more, some were cut even before the current  bill was written. 

First, as is explained in more detail here, unlike the earlier financial reform bill, the current legislation omits much needed provisions to correct two U.S. Supreme Court decisions that essentially immunize banks, accountants, law firms and other institutions that help companies mastermind fraud (?aiding and abetting? fraud).  These decisions are a direct blow to defrauded American investors and make it more likely fraud will occur.  As it?s unlikely these critical provisions will be put back before (and if) the legislation proceeds to the Senate floor, expect Senator Arlen Specter (D-PA) who has been passionate about this issue, to try to put it back when it hits the floor.  (More background on Specter and the broader issue here.)  Let?s hope he succeeds.  Nothing like crooked accountants to compromise the integrity of American markets.

Second, there is an important pro-consumer anti-arbitration clause currently in the bill that may be at risk.  All this provision does is allow regulators to limit mandatory arbitration clauses in consumer and investor contracts, like credit cards.  Ironically, the banks themselves have already been sued by state Attorneys General over this widely-unpopular practice that forces consumers to resolve dispute in a grossly unfair and biased forum.  As a result, many banks have now actually backed off using forced arbitration.  (Click here for more information and to take action.)

And speaking of Attorneys General, Illinois state AG Lisa Madigan has an op ed today expressing real concern that the power of states to enforce financial regulations may also be on the chopping block!  (We?ve blogged here about her suit against Countrywide. ) This can?t be!  She writes in the State Journal-Register:

I?m among the handful of people who investigated and sued some of the largest subprime lenders for their illegal acts. I?ve testified repeatedly before Congress. They all act like this situation is dizzyingly complex. It isn?t. If they can create a trillion-dollar bailout in a few days, they can demand meaningful reform in less than a decade.

I have been in this fight for years. I welcome Washington?s newfound interest in cleaning up the mess, but I worry about its commitment to real change. Now, as Congress is on the verge of passing reforms, it appears they?re going to bargain away state enforcement powers. That?s not meaningful reform and Congress knows it. It is vital the state attorneys general retain authority to pursue fraudulent financial practices to make the process honest.

So let's see, we count three ways (so far.)  Let us know if we missed anything!

Full post as published by ThePopTort on April 23, 2010 (boomark / email).