The New York Times
By: Andrew Martin
May 21, 2010
After months of intense lobbying to shape the future of financial regulation, it turns out that orthodontists and florists most likely won't be under the thumb of a new regulator after all.
Car dealers are still in limbo.
The Senate late Thursday passed a sweeping financial reform bill that promises to impose new oversight over the nation's increasingly complex financial industry, from Wall Street behemoths like JPMorgan Chase to small community banks and storefront payday lenders.
While the potential effect on banks was obvious, many nonbank businesses worried that they too might be swept into the legislation, hurting their ability to extend credit to their customers or hedge their investments against losses.
Even after the Senate vote, many of those questions remain unanswered, as its bill must be reconciled with the House version. And even if the legislation eventually passes, as most expect it will, some issues won't be resolved until specific regulations are written.
"The goal in this is to get statutory certainty in laws in certain areas," said Gary E. Hughes, executive vice president and general counsel for the American Council of Life Insurers, whose members use derivatives to hedge interest rates. "That's proven to be an elusive objective."
Still, the Obama administration and consumer groups had pushed for the creation of a consumer protection agency that would oversee all types of consumer loans, including those originated by mortgage companies and payday lenders rather than banks.
For the most part, they got their wish. Both House and Senate bills include a new consumer agency that would oversee all types of consumer loans, including credit cards, payday loans and mortgages. The agency also will oversee debt settlement firms, debt collectors and check-cashing stores.
"The idea that you have consumer protection no matter where you buy the product is largely in this bill," said Ed Mierzwinski, director of consumer programs for the United States Public Interest Research Group.
Most of the nonbank lenders are currently overseen by state regulators and the Federal Trade Commission, which lacks the resources and rule-writing authority of bank regulators.
The most obvious remaining uncertainty involves the nation's 18,000 or so car dealers, who had mounted a vigorous campaign to be excluded from the new agency's oversight. The dealers, who swarmed Capitol Hill to make their case, maintained that they simply facilitate car loans on behalf of financial institutions and therefore should be exempt.
But the Obama administration and consumer groups argued against the loophole, saying car dealers played a key role in arranging financing and too often steered consumers toward high-interest loans.
The military weighed in too, complaining that dealers foisted unscrupulous deals on soldiers.
On Thursday evening an amendment to exempt car dealers was withdrawn before the final vote. As a result, under the Senate bill, the new consumer protection agency would regulate car dealers.
Despite the loss, car dealers and their supporters in Congress vowed to continue the fight. They had previously won an exemption in the House version of the financial reform bill, and on Monday, the Senate will hold a vote on whether to instruct negotiators to include the auto dealer exemption in the final bill.
"We're not disappointed at this point," said Dave Westcott, a North Carolina-based car dealer who is also chairman of government affairs for the National Automobile Dealers Association, which was urging its members to call senators on Friday. "We'll have an up or down vote on Monday. We're optimistic."
Mr. Mierzwinski held a different view, maintaining that a nonbinding message from the Senate was far weaker than an actual bill. Nonetheless, he said the car dealer exemption would most likely result in a pitched battle as negotiators try to reconcile the two bills.
Among the most obvious winners in the Senate bill were small businesses, many of which were excluded from the legislation. Some worried that small businesses would fall under the regulatory umbrella of the new consumer financial protection bureau, because orthodontists, butchers, florists and plumbers, among others, extend credit to their customers.
But an amendment sponsored by Senators Olympia J. Snowe, Republican of Maine, and Mary Landrieu, Democrat of Louisiana, excluded businesses that met a three-pronged test: they did not sell financial products, did not securitize consumer debt and met accepted definitions for a small business.
While the amendment successfully removed all but the very largest plumbers and orthodontists from the new agency's purview, some business groups said it still left midsize business owners vulnerable to additional regulation, which they deemed unnecessary.
A second amendment, drafted by Ms. Snowe, would require the consumer agency to assess the impact on small businesses before writing new regulations. Consumer groups complained that the amendment would slow the agency's ability to write new regulations and give small businesses, including perhaps predatory lenders, first crack at killing consumer protections.
On another matter, many businesses, including confectioners, brewers and airlines, had worried that new rules for trading derivatives would hurt their ability to hedge. But an exemption was included in the Senate bill that essentially exempts manufacturers of goods that use hedges on such things as commodities, currencies and interest rates.
And merchants were a surprise victor in the Senate version of the bill. It included a provision that would limit the fees, known as swipe fees or interchange, that banks charge merchants when consumers use debit cards. Merchants have long complained that Visa and MasterCard set the interchange rates for credit and debit cards at excessive levels as a way to entice banks to issue their cards. Last year, Visa and MasterCard paid the banks roughly $15.8 billion in interchange fees on debit cards alone.
The bill calls on the Federal Reserve to cap the fees at a "reasonable and proportional" level.