Preemption in Consumer Financial Protection Agency (CFPA) Bill--More to Come

Heading into the House Financial Services Committee's markup of the CFPA bill last week, a handful of moderate, pro-business Democrats—including Reps. Melissa Bean (IL) and Jim Himes (CT)—banded together with the intention of significantly watering down bill language that scraps long-standing federal preemption laws related to consumer protection. However, merely a week later, and in the midst of suggestions from Democratic colleagues that a reinstitution of federal preemption laws would hamper the rulemaking ability of the states and ultimately poison the overarching bill, Bean and her allies were only able to muster a few drops as the committee approved legislation this morning by a vote of 39-29.

Instead, by voice vote, the committee agreed yesterday to an amendment to the Consumer Financial Protection Agency Act of 2009 (H.R. 3126) that allows the Office of the Comptroller of the Currency (OCC) or the Office of Thrift Supervision to intervene and preempt state laws on a limited basis, only in cases where state law discriminates against nationally chartered institutions or “significantly interferes with” national banks’ ability to engage in banking. Offered by Reps. Mel Watt (D-NC) and Dennis Moore (D-KS), the amendment still leaves in place bill language that severely limits the exemptions from state laws that nationally chartered thrifts, banks, and their operating subsidiaries have enjoyed since 2004. 

For the past several weeks, Bean had been championing an opposing amendment that would have preserved federal preemption for nationally chartered financial institutions. However, pressure from the White House and progressive members of the Democratic Caucus convinced Bean and her moderate “New Democrat” coalition to stand down at this juncture. Committee Chairman Barney Frank (D-MA) and others have said the preemption issue can be revisited when the bill goes to the full House for a vote. Jumping at the opportunity to expose fissures amongst Democrats on the committee, Rep. Jeb Hensarling (R-TX) introduced a nearly identical amendment to Bean’s, but was defeated by a vote of 29 to 38. Since Bean was not present at the markup due to a family illness, she did not have to participate in the potentially awkward vote.

The large national banks lost a lot of ground during the House markup. Financial Reform Watch anticipates they will redouble their efforts in the Senate, since it is unlikely that Bean will go against the party leadership and push her preemption amendment any further. One advantage the big banks have is time. The amount of time health care reform will demand on the Senate floor and the difficulties in finding bipartisan consensus at the Senate Banking Committee are likely to cause further delay in getting a comprehensive package before the full Senate.