Last month, Massachusetts Congressman Barney Frank appeared at a Boston town hall meeting cosponsored by the Service Employees International Union, which has recently focused its attention on the business practices of the nation’s largest banks. The event addressed the impact of such things as abusive credit card fees and arbitrary interest rate increases. As the chairman of the House Financial Services Committee, Frank oversees the banking industry, and he has cosponsored legislation that would rein in some of these credit card abuses. At the meeting, Frank spoke about the need for competitively priced banking services for working families, and was largely sympathetic to the folks assembled to tell their tales of debtors’ woe. At the end of Frank’s remarks, SEIU Local 509’s president Mike Grunko asked him whether those gathered could take Frank’s speech as “your commitment to get the credit card bill to the floor,” according to the American Banker.
Grunko’s remark was intended to be far more lighthearted than the response he got from Frank, who replied somewhat icily, “I’m sorry you asked me that. I didn’t come here to be asked questions about this…I filed that bill. I’ve been working for it and I really don’t like the suggestion that I need you to tell me that I’ll be true to my word.” And then he left for another event, for which he was late. In an interview, Frank explains that he was indeed insulted by Grunko’s question, largely because he’d just been talking about all the things he was doing on behalf of consumers and working families, and he thought Grunko’s request for a “commitment” to do things he’d already been doing was unfair. “There was this implication that we can’t be trusted,” Frank says.
Frank’s prickly closing of the town hall meeting was emblematic of his sometimes difficult relationship with consumer groups that want to put some constraints on the nation’s enormous financial services industry. It’s not the first time Frank has exchanged testy public remarks with people who generally consider him an ally in their fight to protect consumers from the practices of the largely unregulated banking and credit card industries.
Last fall, Frank appeared at the National Consumer Law Center’s annual convention in Washington, speaking to a group of several hundred consumer lawyers who are on the frontlines of the nation’s foreclosure crisis. For 12 years, Republicans had largely ignored these folks, and consumer protection issues in general, so Frank’s appearance was a major improvement. But the lawyers seized the opportunity to yell at Frank for the work he was doing on a bill to combat predatory lending that they believed was insufficiently proactive. True to form, Frank yelled back.
For his part, Frank says he thought the lawyers were far more interested in preserving the right to sue after something happens than preventing the problems associated with predatory lending in the first place, which he thought his bill was attempting to do. “I was very unimpressed with that group,” he says.
Frank’s occasional public dustups with consumer groups are akin to the problems that Al Gore had with environmentalists when he was vice president: It’s an issue of expectations. Consumer advocates were thrilled when Frank ascended to the chairmanship of the powerful banking committee in 2007, after the Democrats regained the House in the 2006 election. Republicans were horrified. Frank had been a staple of GOP fundraising materials in 2006, when Republicans warned darkly that if the Democrats regained control of the House, Frank, a fire-breathing gay liberal from Massachusetts, would end up in control of the banking committee and, of course, the world would come crashing down on corporate America.
The reality has been something less dramatic. Frank does indeed have strong liberal credentials, particularly on social issues. He backs legislation to decriminalize pot smoking and voted against the 2002 resolution authorizing the Iraq War. His support for consumer legislation has also been strong. Back in 2001, he even tried to re-regulate cable TV rates. But since taking over as chairman of the House Financial Services Committee, he’s been nothing but pragmatic, which hasn’t come as much of a surprise to those in the finance world. Floyd Stoner, a longtime lobbyist with the American Bankers Association, says, “We had worked closely with Chairman Frank when he was the ranking member and his track record there was as a legislator who worked well across the aisle.” As for Frank’s reputation as a combative liberal, Stoner says that Frank is “a liberal who understands markets.”
Frank’s working relationship with the industry he regulates, in fact, tends to frustrate the consumer advocates who nonetheless support him. Few would talk on the record about him, but the consensus among them is that Frank is a “vote counter.” Advocates say that he is a chairman who doesn’t waste a lot of time pushing for initiatives he knows he doesn’t have the votes for. As a result, the legislation coming from his committee is far less consumer friendly than might be expected from someone with such a liberal reputation.
Take the credit card legislation he cosponsored that is currently pending in the House, the so-called Credit Card Holders’ Bill of Rights. Credit cards are among the most profitable segments of the banking industry, in part because the issuers are able to essentially change the terms of the contracts whenever they choose. Make your car payment late one month, for example, and you could see all your credit cards jacked up to 36 percent interest. These sorts of abuses are rampant in the industry, yet the House bill offers only modest solutions, such as requiring credit card issuers to send out bills at least 25 days before they’re due, rather than 14, or banning companies from changing the interest rate retroactively, as well as more disclosure rules for the already complex credit card contracts.
Ira Rheingold, executive director of the National Association of Consumer Advocates (NACA), laments, “We’re living in a country in an incredible debt crisis, and all they can come up with is some new disclosure rules?” Consumer groups would like to see more stringent measures, such as a ban on over-the-limit fees on purchases that the card issuer still allows to go forward, and many more restrictions on subprime cards that have low limits but very high fees.
Consumer advocates were particularly upset with Frank over the anti-predatory-lending bill passed by the House in November. The bill came out of Frank’s committee, and while it purported to address some of the abuses in the subprime mortgage industry that have led to the current crisis, a whole litany of consumer groups ended up opposing the legislation because they said it would end up leaving consumers worse off than if Congress did nothing at all. The bill, they argued, provided weak federal remedies for people whose homes were going into foreclosure because of predatory lending, while at the same time invalidating much stronger state consumer protection laws, like those in North Carolina, which started to deal with predatory lending long before the subprime debacle forced Congress to jump on the bandwagon.
Part of the problem, from the advocates’ perspective, is that Frank can only be as good as the committee itself. “Fundamentally, he’s doing the best he can,” says Linda Sherry, the director of national priorities at Consumer Action. “The committee is badly partisan,” she notes, saying that the divide makes it incredibly hard to get anything done.
Indeed, the House Financial Services Committee is famous as a plum assignment, not because it gives members an opportunity to wrestle with fascinating issues of public policy, but because it gives them a perch from which to fundraise from the lucrative industry they are charged with overseeing. Few legislators join the Financial Services Committee because they want to whack banks for screwing over consumers. One reason, in fact, that the committee is so conservative is that Democrats have placed some of their more endangered Blue Dog members on it so these legislators can raise more money to stay in office—people like Melissa Bean, a relatively new Democrat from Illinois who represents a Republican-leaning district. Since taking office in 2004, Bean has raised more than $1.3 million from the financial services and real estate industries overseen by her committee.
According to consumer advocates, Frank often has trouble corralling his own party members to support measures that would benefit consumers over banks, much less getting Republicans on board. The credit card bill is a good example. In mid-March, Rep. Carolyn Maloney (D-N.Y.), the chairwoman of the Subcommittee on Financial Institutions and Consumer Credit, held a hearing on the Credit Card Holder’s Bill of Rights. Consumer groups arranged for several people to testify about their troubles with the credit card companies, and some flew in from out of town. But when they arrived on Capitol Hill to testify, they were presented with privacy waivers that would have allowed congressional staffers to turn over the financial information of these witnesses to the credit card companies they were testifying against. It’s not unusual for congressional witnesses to sign waivers, but usually the waivers simply allow congressional staffers to review financial records and other documents as a way of vetting the witnesses before they testify. The waivers presented to the credit card witnesses were designed broadly to give the credit card issuers freedom to discuss the witnesses’ entire financial history publicly, and basically discredit them with it.
The waiver created something of a row. Consumers and their advocates objected to the waivers, while Republicans refused to let the witnesses testify without them. In the end, Frank and Maloney decided to bump the consumer witnesses off the panel and continue with the proceedings, with promises to work out the waiver issue at a later date. (“You don’t want to lose on a procedural issue,” explains Frank.) Meanwhile, the credit card executives got to hold court without publicly facing people who have been deeply affected by their business practices. (The consumers have been rescheduled to appear on Thursday.) The hearing flap demonstrated the banks’ power in Congress, and what Frank has to grapple with, even to advance the weakest of consumer protection bills.
Frank agrees that his committee has some fairly conservative Democrats, whose defections on key consumer measures make it all but impossible to pass anything. He says it’s not the campaign contributions that are the problem, though, but the votes. He says that the conservative Democrats hear a lot from the many real estate agents and mortgage brokers in their districts, and they listen to them because they can deliver big voting blocks come election time.
Most of the consumer advocates understand these dynamics. Under the circumstances, they still give Frank high marks for oversight, among other things. After all, when the Republicans ran the committee, they never held any hearings at all on credit card abuses. They also give Frank kudos for his relentless criticism of the Bush administration’s anti-regulatory approach to the financial markets, which they believe has been useful in changing attitudes not just among Republicans but Democrats regarding the limits of the free market.
And in the end, at least one consumer advocate suggests that if Congress isn’t doing more on consumer issues, part of the blame lies with the advocates themselves. NACA’s Rheingold says that he’s frequently heard Frank tell consumer groups that many of the members of his committee “don’t care what you have to say.” Rheingold says that so long as there are no electoral consequences to voting against consumers, the banks are going to prevail, and he notes of Frank, “I’m not sure it’s his fault.”
On that point, Frank concurs. He, too, is critical of the consumer advocates, who he says do a lot to help draft legislation and get the language right, but then fail to help get the bills passed. As a result, they get out-lobbied by the mortgage brokers and others from the financial sector, who flex considerable political muscle. Frank says he has been extremely frustrated with the inability of the consumer groups to “mobilize their troops” on bills he would like to see pass, such as one reining in overdraft fees at banks that was blocked late last year by community bankers, who flew in hundreds of members to lobby on the Hill. “I was looking for help we weren’t able to get,” he says. Frank says it’s encouraging that SEIU has gotten interested in the banking issues, because the powerful union has the potential to bring some more muscle to the consumer issues, but so far he hasn’t seen much in the way of results. “They just assume if the chairman is for you, the speaker is for you, then that’s enough.”