In 1997 and 1998, banks, insurance companies, and brokerage firms spent over $300 million on lobbying and political contributions. While their “investment” in pushing so-called financial modernization legislation through Congress is inimical to the public interest, it is sure to yield a high rate of return in future industry profits.
The new behemoths allowed by this law will further concentrate financial wealth and power in the hands of the few, expanding America’s obscene and widening gap between the rich and everyone else while further shutting lower-income and minority neighborhoods out of the economic mainstream.
The financial industry has characterized these mergers as being good for consumers by allowing “one-stop shopping” for banking, insurance, and brokerage services. But the industry pushes one-stop shopping only because it enables them to lock customers in for a variety of financial services, rather than allowing consumers to comparison shop.
Through this legislation, the financial industry has also purchased the right to buy and sell your most personal financial information. There are no restrictions on the sharing of this information among the many affiliated companies of these new conglomerates. The information for an estimated ninety-plus percent of customers could be sold to anyone – telemarketers, employers, scam artists.
Most dangerously, the bill substantially reduces the effectiveness of the Community Reinvestment Act (CRA). First, it unjustifiably postpones CRA exams for over 70 percent of banks, whichh will result in reduced lending to lower-income and minority residents of rural communities.
Second, Senator Phil Gramm (R-TX), the Chair of the Senate Banking Committee, used the bill to systematically attack the partnerships banks have formed with community organizations to improve lending in underserved communities. ACORN’s agreements with banks, like those of other community-based groups, provide loan counseling services to low- and moderate-income families to help them resolve any past credit problems and get on individualized financial plans toward homeownership. Using more flexible underwriting standards, reasonable interest rates, and lower down payments, these partnerships have opened homeownership opportunities to a whole new group of Americans who are not served under banks’ standard application processes.
Given all the rhetoric in Congress about increasing homeownership, you would think such a program would meet with universal applause. Instead, Sen. Gramm has singled out the one category of banks’ contracts that specifically benefit lower-income people and minorities for government interference and surveillance. Hypocritically, while Sen. Gramm forces the public disclosure of these private contracts, in September he objected to requiring ATMs to notify customers of fees.
The one modestly pro-CRA piece in the original House bill, the cross-industry merger requirement that the administration has been trumpeting as a breakthrough in keeping CRA relevant amid the oncoming wave of mergers, has been so watered down that what remains is little more than a paperwork requirement.
This is the kind of legislation we get when public policy goes to the highest bidder – a bill that creates huge new financial conglomerates that put taxpayers at serious risk and rob consumers of their privacy. Meanwhile, banks’ obligations to fairly serve lower-income and minority communities are reduced, and those banks that take the positive step of committing themselves to lending in underserved markets are penalized.