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Mar 23
2010

Banks must be able to rip off customers, says Shelby

Posted by Ron F in RiskRegulationfinancial crisisConsumer Financial Protection AgencyCongresscomplianceBanksbanking reformBankingbank failures

Ron F

Does the banking industry need to be able to screw its consumers in order to be profitable? If so, it's in even worse shape than I thought.

Yet that's what Senator Richard Shelby suggested when he wowed the audience in a speech at an American Bankers Association conference last week. Saying the Republicans in Congress would do everything they could do prevent efforts to rein in banks, Shelby noted that "safety and soundness trumps everything," including "the consumer finance whatever."

Correct me if I'm wrong (and I'm sorry I'm late to this), but it seems to me that the ranking minority member of the Senate Banking Committee is clearly implying that banks must be free to sell fraudulent products in order to survive.

And I'm not the first to point that out. As Stephen Lubbens, a law professor at Seton Hall University, put it last Thursday on Credit Slips, "The argument only makes sense if the nation's banks are so horribly undercapitalized that they depend on the extra margin they get from confusing their customers and getting them to make poor choices regarding their finances," Lubbens wrote.

"Under the senator's argument, banks need to conduct ‘unfair, deceptive, or abusive' advertising and write their documents in ‘unplain' English in order to maintain their soundness."

Lubbens went on to compare banks to toaster makers who made dangerous products before they were regulated by the Consumer Products Safety Commission.

"Did toaster companies go out of business when the Consumer Product Safety Commission stopped letting them sell exploding toasters? I guess the ones who couldn't make it selling legitimate toasters did -- but the Senator can't really be saying that America's banking industry is like a shoddy toaster company, can he?"

Lubbens invited Shelby or his staff to explain what he meant off line, but so far there's nothing to indicate that they have done so.

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