From NBC's Ali Weinberg
An ideological battle over the balance of state and federal power is pitting the White House against centrist Democrats, as a proposal to limit states' ability to regulate financial transactions makes its way through the Senate.
Today, a senior White House economic adviser and two Democratic attorneys general criticized a bipartisan amendment to the financial regulatory reform bill that would limit the ability of state regulators to enforce protection laws on national banks and their subsidiaries, which would remain under the oversight of the federal government's Office of the Comptroller of the Currency.
Deputy Director of the National Economic Council Diana Farrell told reporters on a conference call that the amendment would have the net effect of weakening the new bill's regulations, as state watchdogs are more acutely sensitive to their local financial environment than are national regulators.
"States are better able to respond to abuses in local markets," Farrell said. "States and state attorneys general are in a unique capacity to understand where the violations are taking place," she continued.
Democratic Attorneys General Richard Blumenthal of Connecticut and Tom Miller of Iowa also criticized the amendment, which is supported by Democratic Sens. Tom Carper (DE), Mark Warner (VA), Tim Johnson (SD) and Evan Bayh (IN), and GOP Sens. Bob Corker (TN) and John Ensign (NV).
"When the rubber meets the road, states have often acted with much greater effectiveness and closeness to consumers that would be fundamentally undermined" by the amendment, said Blumenthal, who is running for Senate this year. He added that the subprime mortgage crisis exemplifies the failure of the federal government to combat abuses, underscoring the need for state enforcement.
"It's just imperative that it be a joint effort," Miller said. "With mortgages, credit cards, and other transactions, there's no way the federal government can do the whole job," he continued.
*** UPDATE *** Carper's office emails this statement from the senator: "As a former governor, I believe strongly in state rights. However, there are times when it's not always wise to have 50 different states weighing in on what's best. It's important to note that my bipartisan amendment is supported by five former governors, and I think that's a strong statement that this does not hinder states' ability to protect consumers."
"I support creating a new Consumer Protection Bureau to guard against unfair and deceptive lending practices. All my amendment says is that we should make that bureau do its job. This is the cop on the beat that we need. Consumers benefit from a national banking system that has uniform standards. The Dodd legislation, unfortunately, would weaken that bureau and hand over its enforcement tools to the states. This would only create more confusion that would inadvertently hurt consumers."
"My amendment is a sound compromise that would establish clear lines of responsibility at the federal and state level. Also, my amendment would allow state attorneys general to maintain their current powers under existing law to enforce bankruptcy laws, debt collection protections, and unfair and deceptive practice statutes that consumers rely on to make sure they're not being taken advantage of by bad actors."