So looking at the Committee on Financial Services markup page for the CFPA, the original Financial Autopsy amendment (#13, pdf here) was not agreed to, and was reintroduced as the Perlmutter and Grayson Amendment (#35, pdf here). The new amendment is the old amendment, with a giant X through part C (click on the amendments – it really is the same amendments with some x’s and lines and new names written at the top. Legislation is cool). What were the parts again?
Part (a) required a study, a “Financial Autopsy”, of each state’s bankruptcies and foreclosures with an eye towards products that lead to larger numbers of foreclosures and bankruptcies. Part (b) required the CFPA to report annually on these studies and on the top financial products that lead to these bankruptcies. Part (c) requires the CFPA to take corrective action to eliminate these products.
The language of part (c) is what must have scared some people. There are two relevant problems with regulation that we have found in the buildup to the previous crisis worth mentioning here. One is that regulators don’t have the tools to do what they need to do. That was clear in terms of winding down large financial institutions, such as the large banks. It was also clear in terms of teams that were able to investigate financial problems on the ground. As we’ve seen before, when local areas started to experience problems with consumer financial protection, there wasn’t any apparatus like the National Transportation Safety Board who could come in and look critically. The Federal Reserve knows banks, so they just went ahead and asked banks.
But there’s another big problem, and that is of political will. You could have the best team in the world but, like Greenspan at the Fed, if the people in charge aren’t interested in enforcing the rules they aren’t worth anything. Will the reforms we are proposing survive whoever is President next? That’s where a mandate comes in – hopefully a similar purpose can work its way back in.
At the very least though, it’s good that the financial autopsy reports are made public to Congress. At least this way it can become a matter of public record, and consumer advocacy groups can take these reports and run with them.