Showdown Looms for Financial Reform

By VICTORIA MCGRANE | Politico

If there were any question that the stakes are high for financial reform, consider this: Even the Defense Department is getting into the fight.

Pentagon brass want a new consumer watchdog agency to regulate auto dealers so they don’t rip off troops with predatory sales and shady financing deals. Democrats are hoping it’ll be hard for Republicans to oppose something Pentagon leaders want, at a time when troops are in harm’s way.

And there’s more: Payday lenders, check-cashing outfits and rent-to-own stores operate, for all practical purposes, free from federal regulation — and President Barack Obama wants to change that with a consumer agency that spans the world of finance from high to low.

The business community and some influential Republicans are fighting back. The U.S. Chamber of Commerce has launched an ad campaign focused on limiting the reach of any new consumer regulatory agency, saying that a far-reaching entity would wreak havoc on a lot of mom and pop businesses that had nothing to do with the financial meltdown in the first place.

And so far, that argument is carrying the day. The draft legislation being hammered out by Senate Banking Committee Chairman Chris Dodd of Connecticut and Republican Sen. Bob Corker of Tennessee is widely expected to shield most nonbanks from the enforcement powers of the new consumer protection body.

The enforcement carve-out is clearly a concession to Republicans, since Dodd’s original draft bill, unveiled in November, would have created a stand-alone consumer financial protection agency that would cover banks and nonbanks alike, as the Obama administration proposed.

Some critics said they believe Corker, Dodd’s top Republican negotiating partner, has pushed for the exemption because Tennessee is home to powerful payday-lending interests — one of the sectors that would benefit from the enforcement exemption.

Corker’s office declined to comment, saying he wouldn’t discuss ongoing negotiations.

Payday lending was actually born in Tennessee, and Cleveland, Tenn., continues to serve as the headquarters of one of the largest payday-lending companies in the country, Check Into Cash, which has more than 1,000 outlets in some 30 states, according to the website of its parent company, Jones Management. Jones Management is parent to several other consumer credit operations, and its chairman and CEO, Allan Jones, donated $7,000 to Corker’s leadership political action committee between 2007 and 2008, as well as to Corker’s election campaign.

Jones has donated in recent years to other key Banking Committee members, including Dodd, South Dakota Democrat Tim Johnson and Alabama Republican Richard Shelby.

In total, the industry’s giving to both sides has doubled over the past three campaign cycles, to more than $1.5 million during the 2008 campaign, according to a 2009 study by Citizens for Responsibility and Ethics in Washington.

Johnson and Shelby are among the top Senate recipients of payday industry donations. Shelby has received $8,600 from the PAC of the Community Financial Services Association of America, a top payday-lending trade group, since it was formed for the 2008 election. Johnson has taken in $4,000 from the same PAC, while it has given Corker only $1,000.

Payday lenders — like other groups seeking to escape the reach of a new consumer entity — contend they didn’t cause the financial crisis and therefore shouldn’t be punished for it. They also argue that burdensome new regulations will only raise the costs of borrowing for consumers.

“What started out as an attempt to regulate industries responsible for last year’s economic meltdown — mortgage companies and too-big-to-fail banks — has turned into an overreaching bill that seeks to impose federal rules over industries traditionally regulated by the states,” said D. Lynn DeVault, board chairwoman of the Community Financial Services Association.

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