Bank Lawyer's Blog

Class Action Chum

Financial institutions and class action lawyers mix as well as Donald Trump and Carly Fiorina, so the latest news from Ballard Spahr about a new "coalition" of sharks in Sin City is bound to cause bankers everywhere to break out in a nasty rash.

Approximately 50 cases have been filed recently in Nevada state and federal courts against furnishers of information and credit reporting agencies (CRAs) for alleged Fair Credit Reporting Act (FCRA) violations. It appears that consumer rights attorneys have teamed up with consumer bankruptcy firms to monitor credit reports over the course of a debtor’s bankruptcy case and then sue creditors and CRAs after discharge if the debtor’s credit report inaccurately reports debts after the bankruptcy.

As the alert notes, individuals who alleged that they have been harmed by the inaccurate reporting of a debt  that has been discharged in a bankruptcy proceeding have a private cause of action under the FCRA against a creditor that failed to report to the credit bureaus that the debt had been discharged. Of course, the class action attorneys make a nice pile of cash, which has absolutely nothing to do with the matter. It's all about getting "justice" for the debtor.

Banks and credit unions will need to take this trend into account, and ensure that their reporting policies and procedures are hyper-vigilant so that inaccurate reporting to the credit bureaus does not occur. While this has been the case for some time in theory, in practice some institutions appear to have been relying on the theory that if the error is inadvertent, they might get a pass if they correct it as soon as they become aware of it. The "flurry" of new lawsuits makes it clear that the sharks are circling, that reporting inaccuracies are "chum," and that the the plea of "no harm, no foul" will be drowned out by the screams emanating from the bank's dismemberment by a veritable "sharknado" of vicious hammerheads and, perhaps, a few oversize "great whites."

The Unacceptable Nature of Sound Risk Analysis

Henry Meier, the General Counsel of the New York State Credit Union Association, wrote a blog post last week in which he noted the growing sentiment among consumer advocacy groups and the regulators who love them to favor putting the clamps on the nefarious fiends at ChexSystems. As Henry points out, credit unions (and other financial institutions) have been using ChexSystmes for over 20 years to prescreen consumers for potential credit and bank account offers. Notwithstanding the insanity of the subprime mortgage debacle (fostered by non-financial institution originators and their Wall Street bank enablers, by the way), most financial institutions have this funny tendency to want to be repaid money they lend and to have account customers who don't bounce a lot of checks (notwithstanding the popular notion that all banks desire check-bouncers to generate overdraft fees). Well, according to the same folks who fell in love with "disparate impact" in the lending area, that's simply not fair.

Henry links to a lengthy New York Times article that is chock full of state bank regulators and consumer advocacy spokespersons who claims that maintaining a database on people who bounce checks and otherwise stiff banks is preventing poor people and racial minorities from getting bank accounts, all based on the fact that they haven't handled bank accounts responsibly in the past. In other words, they are suffering the logical consequences of their behavior. You can understand how unfair this might be in a world when those who have not are entitled to have simply because...they are.

The article notes that the CFPB is currently investigating whether databases like that maintained by ChexSystems violate the FCRA. The New York State Banking Superintendent is also on the case. The boys and girls at the US Department of Justice can not be far behind.

While conceding that banks don't want to "bank" customers who aren't profitable, and that bouncing checks in light of the recent cut backs on the ability to charge overdraft fees makes such customers potential money losers, the article then gets down to the real reason that banks must overcome their adherence to sound business principles and take the kind of risks that regulators claim to hate: Feelings. Nothing more than feelings.

The sting of being rejected, though, can make lower-income individuals feel like second-class citizens.

“I just don’t understand why they wouldn’t want me,” said Ms. Murrell, the Brooklyn secretary. “It feels unfair.”

There you have it: It's simply "not fair."

The watch words for a new area of banking policy and enforcement actions: Life is not fair, so we'll use the power of the state and federal government to make it fair. Because, after all, no one should have their feelings hurt.

What's A "Reasonable" Investigation?

Troutman Sanders released an informative advisory concerning a recent US Sixth Circuit Court of Appeals decision that overturned a district court's grant of a motion for summary judgment in a lawsuit filed by a consumer against USAA Federal Savings Bank that alleged that USAA had violated the Fair Credit Reporting Act. The plaintiff is a consumer who claimed that he was not a co-obligor on a delinquent automobile loan made by USAA and who  provided USAA "with documents showing that his ex-wife forged his name on a check, purchased the car while they were separated, and later signed a separation agreement confirming she was solely responsible for the loan payments."

The FCRA requires a creditor to conduct a "reasonable investigation" into the disputed information. According to deposition testimony of a USAA employee, "USAA’s procedures prohibited consulting documents from a consumer’s file – including the allegedly forged check – before responding to a dispute notice from a CRA. Instead, the employee testified that the company’s procedures only require a cursory verification of his identify and confirmation of the loan’s status before responding to a CRA dispute notice." USAA demanded that the consumer furnish USAA with a police report or fraud affidavit, and when he refused to do so, USAA made no further information. Instead, when contacted by major credit reporting agencies about the dispute, USAA responded that the consumer was a co-obligor.

According to Troutman Sanders, the Court of Appeals found that "simply following standard company policy will not excuse furnishers [of credit information to credit reporting agencies] from their obligations under the Fair Credit Reporting Act to conduct investigations into the accuracy of reported information, nor insulate them from punitive damage claims for recklessly disregarding the statute’s requirements. Even if a consumer refuses to provide a police report or a fraud affidavit, this does not excuse a furnisher from its obligation to conduct a reasonable investigation because section 1681s-2(b) does not permit furnishers to demand further documentation from consumers."

Of particular note, the Court of Appeals ruled that “the mere existence of a company policy does not resolve the inquiry into the reasonableness of its investigation.” The Court noted that section 1681s-2(b) does not allow “furnishers to require independent confirmation of materials contained in a CRA notice of dispute before conducting the required investigation.” And, in this case, [the plaintiff] was not notified of USAA’s standard procedure to require consumers to provide a fraud affidavit or a police report before it will conduct further inquiry into a disputed claim until after USAA had responded to the CRAs that the information was accurate as reported.  Therefore, the Court came to the conclusion that the consumer’s refusal to comply with this company policy could have not had any effect on the already completed investigation.

Lenders are advised to review their policies and procedures with respect to investigations of disputed information that has been reported to credit reporting agencies. I suspect that USAA is not the only financial institution that, when a similar allegation of fraud is made by a consumer, requires a fraud affidavit, a police report, or similar documentation to be furnished before it takes the allegation seriously. According at least one federal court of appeals, that is not a proper fulfillment of the lender's duty to conduct a reasonable investigation. While a jury may ultimately decide whether or not in this case USAA made a "reasonable" investigation, based on the facts set out in the advisory, and the alleged failure of USAA to even look at the information submitted by the plaintiff (including evidence of the forged check), I wouldn't count on a favorable outcome.

Clarity

I'm in the midst of a road trip this week in the service of the Dark Side of The Force, but before I "go dark" until next week, I'd like to give my "props" to the two NAFCU compliance officers who've taken over postings at the NAFCU Compliance Blog from Anthony Demangone (who was kicked upstairs to the COO's job). Last week, Sarah Loats Zimmerman had a useful clarification about the upcoming changes to the FCRA Adverse Action model forms. As Sarah points out, Dodd-Frank mandated a change to the FCRA form, not the Regulation B form, but since many lenders combine the notices where appropriate, the FRB issued a proposed combined model form. The effective date for the new form is July 21, 2011, so a final form should be issued shortly. If your bank has been confused about this issue, Sarah's post should help clear up that confusion.

On Friday, Steve Van Beek wrote his second post of the week (and revised an earlier post) regarding the second notice that must be given regarding noninterest-bearing transaction accounts. While Steve discusses some other notices that are required in regulations that apply to credit unions, the discussion should be useful to banks and other financial institutions, which have similar regulations. It's another fine instance of compliance officers clarifying less-than-clear regulations inflicted upon financioal institutions by lawyers. For that, you have to give both Steve and Sarah a hat tip.

The Home Stretch

Yesterday, WilmerHale put out one of those short client alerts that doesn't bore bankers with its excruciating in-depth analysis of some esoteric nuance of Dodd-Frank. Instead, it basically points out to bankers who've been living in caves or strung out on a drug of their choice that they've got one month to wake up and smell the deadlines. Three deadlines, to be precise.

First, December 31, 2010 is the red letter day when the FTC will FINALLY (and they mean it this time) start enforcing their Red Flags Rule. If you don't what a "red flag" is by know, pray to the deity of your choice, because you'll need his, her, or its help.

Second, January 1, 2011 marks the day that banks must use the model privacy notice form if they want to have the benefit of the GLBA "safe harbor." Again, if any banker doesn't know what I'm talking about, grab your closest bank regulatory lawyer and ask him about civil money penalties.

Finally, January 1, 2011 is also the day that the FRB/FTC joint rules governing the risk-based pricing notice mandated by the FACT Act will go into effect. The rules set forth what types of information the notices must contain and what alternative information or exceptions might apply.

These deadlines have been approaching for some time now, and you'd think every affected financial institution would have been prepared for them by this point, so that a Chinese fire drill could be avoided during a month when vast quantities of eggnog should be consumed and mistletoe should be hung at completely inappropriate places throughout the office. But as we saw four years ago when the multi-factor authentication "guidance" deadlines approached, then passed, with some bankers taking an "ignorance-is-bliss" or "What, me worry?" attitude toward the whole affair, I'm sure they'll be a few bankers who've patterned their professional careers after John Belusi's character in Animal House, and have spent the last several years smashing beer cans against their foreheads instead of worrying about these petty deadlines.

WilmerHale offers these slackers a helping hand.

If you have questions about compliance requirements for the FTC's Red Flags Rule, use of model privacy notices or compliance with GLBA privacy rules, or proper implementation of the FACT Act risk-based pricing rule, please do not hesitate to contact us.

Or wait, and then hire them later to defend you against regulatory enforcement actions. You can pay them now, or pay them later.

Red Flags In Place?

Occasionally, I like to point those readers who are in-house counsel or private practitioners and who represent financial institutions to a useful publication that's available on-line from another law firm. Ordinarily, I'd make a snarky, self-deprecating comment at this point; however, my e-mail lately indicates that there are some readers who not only don't "get" the snark, but take it on face value and begin to froth at the mouth with politically correct apoplexy. So, just for today, I'll play it straight. Tasteless, low-brow sarcasm will resume tomorrow.

Today's resource is the Proskauer Rose LLP Privacy Law Blog, which has good material on, of all things, privacy law. Of particular interest to many businesses is a recent post on the suspension of enforcement by the FTC of the of the "Identity Theft Red Flag and Address Discrepancies Rules" until May 1, 2009. Unfortunately, the suspension applies only to those business subject to FTC enforcement of the rules, not to financial institutions governed by the Red Flag rules that are enforced by the federal bank regulatory agencies. As to the latter, you banks better be in compliance by the end of this week!

The reasons for the FTC action are interesting.

The rules apply to financial institutions and creditors.  But, according to the FTC, many companies “indicated that they were not aware that they were engaged in activities that would cause them to fall under the FACT Act’s definition of creditor or financial institution.”Moreover, the FTC said that companies not traditionally subject to the jurisdiction of the FTC did not follow the FTC’s rulemaking, and consequently did not become aware of their obligations under the Red Flag Rules until very recently.  The FTC also expressed concern that covered entities, to meet the fast approaching November 1 deadline, were not taking the appropriate care necessary to do a proper risk assessment and craft a meaningful red flags program.

As the FTC stated, “[g]iven the confusion and uncertainty within major industries under the FTC’s jurisdiction about the applicability of the rule, and the fact that there is no longer sufficient time for members of those industries to develop their programs and meet the November 1 compliance date, the Commission believes that immediate enforcement of the rule on November 1 would be neither equitable for the covered entities nor beneficial for the public.”  Therefore, the FTC will delay enforcement of the new rules for six months.  Considering this generous extension, covered entities should be on notice that they will need to have a written identity theft prevention program in place by the May 1, 2009 deadline.

So, this time around, being a clueless ignoramus turned out to be a good thing, unless you were a financial institution regulated by one of the federal bank regulatory agencies.

Many banks were well on their way to compliance with the Red Flag rules as part of their information security and customer identification programs, long prior to November 1. Red Flag and address discrepancies compliance has been more a matter of documenting the program and having it approved by the board of directors.

Incidentally, the OTS released last Friday revised examination procedures, which were developed jointly with the other agencies, for examinations after November 1, 2008. The revised procedures incorporate procedures to test compliance with the Red Flag rules. The OCC released its revised examination procedures on October 15, 2008, which also addressed affiliate marketing and opt-out notices.

The Limits of Literacy

Recently, John Carey at Dealbreaker raised a subject that  I also raised a few years ago and that, at the time, engendered some spittle-spewing outrage on some consumer financial advocacy blogs and message boards: the financial illiteracy of most Americans. In a February 2005 post about the fears of some lenders that they would be overwhelmed with inquiries from consumers because of the (then) new requirement that credit reporting agencies furnish consumers with an annual free credit report, I said that I doubted those fears were justified.

If contacts with banks increase, it will be due to a trend of financial literacy generally, not due to the existence of this new right. I've seen no evidence that financial literacy of the average consumer is increasing. While there may be some increased contacts from the financially literate consumer, the numbers of those are in a distinct minority in this country.

Notwithstanding accusations at that time of "arrogance" (which accusations tie in nicely with recent sneers of "elitism" by a critic of this blog), I think that I was on the money. Banks weren't overwhelmed by inquiries about their credit reports.

If I was arrogant, Carey is the Platonic ideal of arrogance of which my feeble efforts are a mere pale reflection.

There's no question that the United States is a nation of financial illiterates, and that this contributed to the decisions of millions of Americans to run up credit-card debts, buy houses they couldn't afford, purchase college educations they can't pay for.

Moreover, Carey doesn't believe that more education would have made people more financially literate or that more financial literacy would have made a difference in any event.

Educated people tend to overrate the value of education (just as intelligent people overrate intelligence). Reality, however, is less enthusiastic about education. Despite decades of civics class, the broad public remains shockingly ignorant of even the most basic political facts. There's little to suggest that widespread financial education can make a meaningful difference in overcoming financial illiteracy in all but a select few. Many people are illiterate because they are, for all practical purposes, uneducable.

What's more, it's questionable that even a financially literate people could have avoided the mistakes that led, say, to the mortgage mess. Some of the most financially literate people on earth lost billions on Wall Street betting wrong on mortgages and derivatives. If a Wharton education can't prevent these kind of colossal errors what are the odds that a semester of high school finance would?

Greed often trumps rational behavior, as can sloth, lust and other basic human "sins." Carey rightly points out the fact that Wall Street Wizards took way too much risk in connection with residential mortgage loans and securities backed by those loans. He doesn't advance a reason, but it wouldn't be unreasonable to suggest that money played a role, would it? I hope this is not an "elitist" viewpoint, but I think that most of those involved in creating the current credit "crisis" appear to have let their need for immediate gratification overwhelm their common sense or at least a sense of caution that you would assume should have been possessed by any reasonable human being. Some participants in the debacle were innocent dupes, and some were criminals, and I suppose we'll only know the relative proportions of these subclasses when we get a chance to look back once this crisis has resolved itself. At the moment, however, I have a hard time believing that the majority of the people on any side of this mess were either innocent or evil. Instead, I think that they were imprudent, often grossly so.

One of Carey's commenters, who appears to be well-spoken and thoughtful, posits that the painful consequences of this meltdown must be brought home to all participants.

[T]he more risk the more people pay attention. When your entire future rests on your successful management of your investments, you pay more attention and you take fewer risks. This is human nature and applies to driving (seatbelts, roadsigns, curbs, painted lines, highway dividers, etc all increase the risk tolerance of road users), health (safer sex practices vis a vis treatment options for STDs, dietary choices vs blood pressure meds, total risk taking vs avg life expectance (sic)), and finance. The more risk in the system, the more cautiously people behave - Moral Hazard is very real and demonstrable, despite the protestations of leftists everywhere.

While I might agree with that view as a general proposition, I think that it has to be tempered.  It may be important to let people who act rashly suffer the natural consequences of their behavior, in the expectation that they (or others who observe those consequences) will learn lessons about prudent risk management. However, many citizens will insist that such a purely free market view be qualified by a sense of basic human compassion (whether or not religiously or spiritually inspired) and by the desire to make certain that the sufferings of the "guilty" do not spread to the "innocent" (whether that means "bailing out" Bear Stearns, opening up Fed borrowings to investment banks, or passing some type of legislation to keep the crisis from hurting businesses and consumers who did not participate in the crisis). Those who believe in the law of moral hazard and in the efficacy of the markets to best work through this painful process without the gentle ministrations of Congress will fight to minimize legislation or other outside intervention, and will vehemently oppose attempts by those who are attempting to use the crisis to promote their social engineering schemes. These are some of the basic issues all of us who are interested in the matter are wrestling with and debating as we watch the cynics in D.C. and elsewhere play to their constituencies, push personal agendas, and protect their bureaucratic turf.

More financial education and more financial literacy appear to be worthy goals, even if people like Carey remain skeptical that they will be achieved. However, I think that the entire topic of financial literacy and education has to be qualified with the observation that many people, educated and uneducated, intelligent and unintelligent, appear to suffer, some consistently and some sporadically, from "willful blindness." No matter how much people know or how well they are able to reason, no matter how much a particular action might appear to be illogical to an objective observer, human beings are masters of self delusion, ignoring the risks, turning their rational minds to the "off" position, and doing the damnedest things. We've seen it before, and we'll see it again.

What We Have Here Is A Failure To Truncate

The Wall Street Journal's Law Blog had an update last Friday about the status of class action lawsuits filed by aggrieved consumers (in other words, by class action attorneys who've "discovered" lead plaintiffs) to punish merchants who left too much information on electronically-printed credit card receipts in violation of the Fair and Accurate Credit Transactions Act (FACTA). Oddly, the Law Blog's link to FACTA ties to a Yahoo article by Chris Kelleher ("an award-winning small-business advisor and attorney") about the disposal requirements of FACTA, not the truncation requirements. Oh well, "close" is enough in horseshoes and law blogging, right?

The latest post is an update of a post earlier in April that discussed a split in lower courts, with one trial court denying class action status partly on the basis of an "annihilation defense" (class action damages would "annihilate" the defendant), and another court declining to strike down class certification on that basis. One commenter to that post points out that the "overwhelming majority" of the 300 class action lawsuits filed involve the failure to delete the expiration date of the consumer's credit card on the receipt, not all but the last five digits of the credit card number. The commenter alleges that "[t]he expiration date is of NO benefit to an identity thief..." I'm not certain that's correct, since it's one piece of information that, taken with others, can aid an identity thief. Moreover, its elimination is technically required by FACTA, and the failure to delete it exposes these defendants to between $100 and $1,000 per class plaintiff (and, of course, the always-beneficial-to-society class action attorneys' fees), so there you have it. If the plaintiffs can prove reckless or willful disregard for the law, then the upper limit of damages is a real possibility.

A commenter to the earlier post who claims to be an attorney whose firm is defending some of these suits makes the claim that the liability should be covered by the retailer's liability insurance, and, therefore, "so as long as we can keep the settlements reasonable, it won’t spell the end of the companies (just their ability to acquire reasonably-priced insurance in the future)." That's certainly a very practical take on the problem. Once again, the insurance company pays over the short run, but everybody pays over the long run through higher premiums, although this isn't an issue that's likely to be recurring, is it?

It might be because I followed FACTA so closely for some of my clients, but I'm not sympathetic to the ignorance of retailers, especially some of the large ones, who claim ignorance of the law (never a sufficient excuse in any event). In an article in last April's WSJ, an attorney for a retailers trade group blamed credit card companies for doing a lousy job of notifying retailers. I thought that was the job of retailers trade groups.  I simply don't see the equities lying in favor of the businesses in this case. With identity theft such a high profile crime, and with the  lead time provided to businesses to comply, the stick-your-head-in-the-sand approach doesn't seem to garner much sympathy, notwithstanding the fact that, once again, it's our favorite punching bag, class action plaintiffs' attorneys, trolling town for consumers with "nontruncated" credit card receipts.

At least one commenter claimed that class action litigation caused companies to change their practices, which is undoubtedly true, and which is used a justification for class actions. Ironically, a publication from September 2007 on this topic by Jones Day offers "prompt corrective action" as a tactic for defeating class action status.

At least two federal district court judges have denied class certification for these types of cases. When comparing the plaintiffs' failure to show any actual harm against the potential harm to the defendants in the tens of millions to hundreds of millions of dollars, the court determined that class actions were not the best method to adjudicate these claims...That both defendants immediately corrected their error upon filing of the complaints served as a major consideration behind these decisions...

Maybe an indication as to how much of a non-issue this hubbub might eventually turn out to be is demonstrated by the settlement outlined in the most recent Law Blog post.

In a settlement approved on Tuesday in the Western District of Pennsylvania, Kings Family Restaurant agreed to offer the plaintiff-class one of the following four options:

• a free ‘appeteaser’ and a free mini-sundae, with a retail value of up to $ 4.68; or

• a free homemade bowl of soup and a free slice of apple or pumpkin pie, with a retail value of up to $ 4.78; or

• a free cup of soup and a free ‘appeteaser,’ with a retail value of up to $ 4.38; or

• a free dinner salad and a free single scoop of Kings Premium Ice Cream, with a retail value of up to $ 4.38.

According to the opinion, defendant has further agreed to donate 500 gift certificates for kids’ soft drinks, with a retail value of $ 0.99 per drink, to First Tee, a non-profit organization which offers underprivileged children the opportunity to play golf. Defendant also agreed to pay plaintiffs attorneys fees and costs not to exceed $75,000.

The Law Blog states that only 165 class members (less than 1% of the class) obtained "coupons" (I assume the author meant the right to obtain the free "goodies" offered by the restaurant), which meant that the attorneys fees exceeded the recovery by 100 to 1. That's a relatively sweet deal for the lawyers, but not much reward for the class members, unless you're into "appeteasers."

As a parting observation, you have to love the comment by one anonymous person, presumably a lawyer: "I say 75 k is not worth my time." No wonder so many people hate lawyers.

Help! My Settlement Lender Just Imploded!

Anyone know a good lender? One with money to burn? Have we got a hot deal for you!

Responding to my posting (a rant, actually) of last week concerning class action litigation against subprime mortgage lenders, a bemused reader pointed me to this proposed class action settlement. According to the class action information web site, the class action is against Finance America and concerns purported violations by Finance America of the Fair Credit Reporting Act arising out of what were (or were not ) "firm offers of credit" made (or not made) by Finance America. The proposed settlement involves "Settlement Loans" to be made by BNC Mortgage to members of the class who are "qualified borrowers at a favorable interest rate and with a single fully disclosed fee to be paid to and retained by the lender."

There's a "hitch in the giddy-up," however.

Like other mortgage lenders, BNC Mortgage is closing. The parties are in the process of trying to work out a solution to the closure of BNC that would allow the settlement loans to be made on at least as favorable terms as before. Once that process is finished, both the settlement website and information on the toll free phone line will be updated. In the meantime, you may still register for settlement loans. Registered class members will be contacted by their preferred means of contact with updated information about the case.

According to our favorite "Implode-O-Meter," BNC isn't "closing," it's "closed." See number 136 on the list  of "Imploded Lenders." That must make the "process of trying to work out a solution" very challenging, indeed. There's a hearing scheduled for October 22, 2207, so I'm sure that folks are scrambling to find a lender to step in and make loans to the class "at a favorable interest rate."

That should be relatively easy. It's not like there's a liquidity crisis in the residential mortgage market.

Power Grope

Chairman Mao's Frank's mid-June meltdown continues to ooze hot stuff that seeps through the cracks of the floorboards of Congress and drips, like Chinese water torture, onto the heads of the Federal Reserve Board (paid subscription required).

A month after House Financial Services Committee Chairman Barney Frank told the Federal Reserve Board to use or lose its power to ban unfair and deceptive banking practices, the Massachusetts Democrat said he wants to hand that power to two other agencies.

At a hearing Wednesday, Rep. Frank said the Federal Trade Commission Act should be amended to give not just the Fed but also the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. the power to police lending practices.

The Office of Thrift Supervision has similar authority, he said, but for reasons for which "no rational explanation is even conceivable, much less likely," lawmakers have denied the OCC and the FDIC the same right.

"My strong view now is that something should be done legislatively to correct that," Rep. Frank said.

Last month, he threatened to give the OTS "The Powah." Now, he's decided that the Lilliputians already "got them some," so he's edging closer to his secret love, Sheila Bair. Did I mention previously that Sheila Bair won the 1989 American Natural Bodybuilding Conference Women's Championship? I did? Not the same Sheila Bair? Well,then, never mind.

A talking head from the land of bankers tried to misdirect Chairman Frank, but he was having none of it. NONE OF IT, I SAID!

Testifying on behalf of the American Bankers Association, Arthur Johnson, the chairman and chief executive of United Bank of Michigan in Grand Rapids, said he would support such a move, but only if the agencies issued uniform rules.

"It would be anomalous — and harmful — for the five federal agencies … to adopt different standards of what is an unfair or deceptive act or practice," Mr. Johnson said.

But Rep. Frank said lawmakers learned from their experience with the Fair and Accurate Credit Transactions Act of 2003 that giving seven regulators the shared task of writing rules proved to be a disaster. The law is still not fully in effect, because regulators have not finalized the implementing rules.

That many regulators are "incapable of action," he said. "So that one doesn't work to me."

Unfortunately, instead of merely beating down the Fed and pumping up Ms. Bair's biceps, Barney Rubble had to smack down our favorite tool of capitalist oppression and imperialist power-projection: federal preemption.

Barney's got a point. While waiting for the final FACTA regulations to be issued, I plan to sell the last of my carbon offsets to Al Gore and board a starship to the Shoulder of Orion immediately prior to (1) the Northern Hemisphere being lashed (FINALLY!!!) by those hurricanes Jesus has been telling Pat Robertson for years will ("This year, Pat, I swear on the heads of the Father and the Holy Spirit") batter the Sodom and Gomorrah known as "America," and (2) the Southern Hemisphere freezing into the gigantic rink so long yearned for by those of us eager to ice skate in Hell. [Editors side note: as a devout Roman Catholic, I always get a kick out of the way the Lord wools Pat around every year about the upcoming hurricane season. Then again, in Pat's eyes, inasmuch as I am a devout Roman Catholic, the Big Guy's coming back to vaporize me, the rabbi next door, every crank and crack dealer, and "all those gays on Broadway."]

Rep. Frank tried to bolster his argument for reform by saying the current federal regulatory regime does not protect consumers adequately, because preemption has undercut state laws.

"The current set of tools and resources that the federal banking regulators have were configured in an era where the assumption was there was a lot of state consumer regulation going on," he said. "There is now, for national banks, virtually no state consumer regulation, certainly none that is specific to banks."

The preemption issue "is not going away," he said.

Rep. Frank said he is still weighing how best to use state supervisors and attorneys general to enforce rules and laws against unfair and deceptive practices.

I understand that after the hearing, he told reporters "off the record," that he'd like to dress some of the state supervisors and attorneys general up in tuxedo shirts and surfer jammies, and take them clubbing. How that addresses federal preemption is beyond me, but it sure does sound like a whole bushel and a peck of fun, doesn't it?

Frank's Republican counterpart on the Committee weighed in on the issue as only a member of that out-of-power party can.

The committee's ranking Republican, Rep. Spencer Bachus of Alabama, missed the hearing...

That might have been a tad unfair, since he had someone else read a written statement at the hearing, but as I recall, it only addressed wool tariffs in Botswana.

Consumer advocates also had their say, which would be expected at any hearing chaired by Barney.

Travis Plunkett, the legislative director for the Consumer Federation of America, who testified on behalf of six consumer organizations, said banking regulators have enough power to stop unfair practices but have chosen not to use it. He said the FTC should be able to take enforcement actions against depository institutions and to ban specific bank practices.

"The key to addressing these root problems is to make the regulatory process more independent of the financial institutions that are regulated," he said.

Yeah, make sure the regulators aren't familiar with financial institutions, so that they have little idea how their enforcement actions, policies and regulations affect them. Someone like: Travis Plunkett.

There was more "blah, blah, blah," but we've hit the highlights, or at least those we've been able to hit before our lithium kicked in.