As the Congressional conference committee debating the House and Senate financial regulation bills met this past week, members have diluted or killed three critical reform efforts.

 

First, conferees deferred reform efforts contained in the Franken Amendment, which had bipartisan support to create an SEC regulated clearinghouse for credit rating agencies, by instead commissioning a two-year SEC “study.” Second, lawmakers elected to water down the Durbin Amendment, which reins in excessive interchange fees paid by small business owners to debit card issuers. Third, the conference moved towards expanding an exemption for auto dealers from a new consumer protection agency.  

 

These examples of special interest influence on three critical components of reform demonstrate how lawmakers put the interests of Washington lobbyists above the interests of small business owners and the need to effectively regulate our financial system. I call on members of the conference committee to ensure that the final bill contains real credit rating agency reform, fee relief for small business owners, and no exemptions from important consumer protections.

The faulty ratings assigned to the debt obligations and credit issued by states and financial institutions, such as Lehman Brothers, was perhaps one of the most egregious failures in the recent financial crisis. The obvious conflict-of-interest that arises when a financial institution is directly paying for "objective ratings" must be acted upon now and not another deferred decision for the next Congress or the next crisis. 

While I support the new liability-standard adopted by the committee, allowing investors to sue ratings agencies for knowingly faulty ratings, I am disappointed that conferees accepted the watered down House language over the tougher Senate provisions. Now is the time for real reform instead of check-the-box gimmicks that all too often passes for reform in Washington. I propose that the conference committee adopt three immediate changes to role credit rating agencies play in our financial system.

First, I recommend that the conference committee members adopt the Senate's tougher language on a liability-standard to protect investors. Second, I propose the committee create an SEC-regulated clearinghouse in the spirit of the Franken amendment to end the inherent conflict-of-interest that currently afflicts credit rating agencies. Lastly, I would encourage the members to enact provisions for the SEC to improve upon the Franken amendment by ensuring that rating assignments are determined by an agency’s ability to rate various debt obligations instead of through random selection. 

The current agency model -- with its obvious conflict-of-interest -- is a blatant danger to our financial system and our economy. Members of the conference committee must act on this central piece of reform to protect Americans from another financial crisis.

Currently, small business owners face exorbitant fees from each debit and credit card transaction, nearly fifteen times those incurred when a customer uses a check. In 2009, businesses paid nearly $20 billion in fees on debit card transactions to Visa and MasterCard alone, with 80% of those fees going directly to big bank profits. 

Senator Durbin’s amendment to limit interchange fees on debit cards isan important provision that would empower the Federal Reserve set reasonable and appropriate interchange fees on debit card transactions to protect small business owners.  .

We must empower small businesses to drive a robust economic recovery and I call on the conference committee members to expand the scope of the Durbin amendment ease small business fees on credit card transactions as well. Currently, excessive credit card transaction fees force small business owners to either set minimums or take cash only payment. As a result, small businesses lose out on many transactions and consumers are given less choice in their payment options. At this moment of economic fragility, we need to expand consumer choice and ease small business burden, not enable big banks and credit card companies to charge excessive fees. 

Predatory consumer lending proved central to the recent financial crisis, particularly financing for new auto and home purchases. I strongly believe in the need for a new consumer protection agency with no special interest industry carve-outs or exemptions -- to ensure that Americans are protected from predatory lenders. However, the House previously voted to exempt auto dealers from these critical consumer protections and the conference committee appears set to again cave to these special interest demands.

In May, President Obama called on Congress to prevent any special interest exemptions from the new consumer protection agency and I strongly encourage to the conference committee to ensure no carve-outs are included in the final bill. Allowing auto dealer financing schemes to be exempt from consumer protection is dangerous for consumers and our economy. 

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