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May 13, 2010 Thursday 4:47 PM EST
Consumer protections in bank-reform spotlight
Ruth Mantell, MarketWatch mailto:email@example.com.
Ruth Mantell is a MarketWatch reporter based in Washington.
WASHINGTON (MarketWatch) — Amendments aimed at protecting consumers are among the most hotly contested pieces of a far-reaching bank-reform bill trudging its way through the legislative process this week.
Thursday afternoon senators are expected to vote on amendments that would exempt auto dealers from coverage by a proposed consumer financial-product agency, enable the Federal Reserve to write rules on debit-card transaction fees, and require health insurers to be covered by federal antitrust laws.
Consumer advocates fiercely oppose the auto dealer amendment, introduced by Sen. Sam Brownback, R-Kan. They say auto dealers that are closely involved in making loans should be covered by the proposed agency, which is geared to protecting consumers from risky financial products.
Adding muscle to their argument, the U.S. Defense Department weighed in on the issue, welcoming protections from a watchdog with regard to “unscrupulous automobile and financing” practices.
“While each military service includes car buying and financing classes as part of its normal financial educational curriculum, there are still documented cases of service members falling victim to predatory practices and prohibitively expensive products,” according to a letter from the Department of Defense to the Treasury Department.
Industry advocates say dealers are already effectively regulated, and that the auto finance model keeps down consumers’ credit costs. A version of bank-reform legislation in the House of Representatives would exempt most dealers.
The debit-fee amendment, which would enable the Fed to issue rules to ensure that fees charged to merchants to cover transaction-processing costs are “reasonable and proportional” to the costs incurred, also has been a lightning rod for debate. The amendment also would allow merchants to offer discounts to customers who pay with a cash or check, among other actions.
Advocates of the amendment say “swipe” fees can cut a merchant’s profits or raise prices for customers. Opponents say the amendment could lead to higher prices for bank customers and decrease access to debit cards. The amendment would exempt banks and credit unions with less than $10 billion in assets.
Also Thursday the Senate may vote on an amendment requiring that health insurers be covered by federal antitrust laws. The amendment would repeal the health insurers’ antitrust exemption “and ensure that they follow basic rules of fair competition,” according to a statement from the bill’s sponsor, Sen. Patrick Leahy, D-Vt.
“Competition ensures that consumers will pay lower prices and receive more choices,” he said.
Already this week the Senate has approved a ban on mortgage steering payments, looking to prevent lenders from steering customers into overly costly and risky loans. The amendment, which was approved in a 63 to 36 vote, would also prohibit lenders from making loans without verifying the borrower’s ability to repay from income and assets other than the home’s value, among other actions.
Senators also approved an exemption for small businesses from the proposed consumer financial protection agency. The amendment was offered following concerns that small businesses such as dentists would be subject to new regulation from the watchdog.
Before any amendment becomes law, the House and Senate need to agree on an overall bank-reform bill.
More debate ahead
Looking forward, consumer advocates are concerned about an amendment from Sen. Tom Carper, D-Del., that calls for the proposed consumer protection agency, not state attorneys general, to enforce the watchdog’s rules.
The underlying bank-reform bill would give state attorneys general the power to enforce rules from the watchdog, a provision that consumer advocates say is key to ensure that problems are recognized quickly and attended to. They argue that it makes no sense to limit enforcement to federal agencies.
However, Carper said it’s important to make the federal watchdog do its job.
“This is the cop on the beat that we need,” Carper said. “There are times when it’s not always wise to have 50 different states weighing in on what’s best. Consumers benefit from a national banking system that has uniform standards.”
Senators may also vote on an amendment introduced by Sen. Sheldon Whitehouse, D-RI, for credit-card companies and other lenders to abide by the interest rate limits of the states in which their customers reside.
And Mark Udall, D-Colo., has proposed enabling consumers to get free access to their credit scores.
No votes are currently scheduled for Friday or the weekend. Amendments that aren’t voted on today could be taken up as early as Monday.
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May 14, 2010