AFR to Senator Dodd: Support Strong Reforms

February 1, 2010

The Honorable Christopher Dodd
Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C.  20510

Dear Senator Dodd:

We are writing today to convey our strong support for comprehensive regulatory reform, and to reaffirm our view that reform must include certain crucial elements. We look forward to working with you to craft, and to pass, legislation that will increase transparency, accountability, and fairness, and protect us all from the job loss and economic devastation of another financial crisis.

AFR supports an independent Consumer Financial Protection Agency (CFPA) that will create fair rules of the road for financial products by cracking down on the abuses and deceptive practices of credit card companies, preventing brokers and lenders from tricking borrowers into loans they can’t afford to pay back, and protecting consumers from deceptive and unfair products and confusing contracts.  The CFPA would streamline the currently fractured regulatory system in which seven federal agencies oversee almost 20 different laws.  The CFPA must have independent rulemaking authority, an independent budget not solely dependent on appropriations; examination and enforcement authority; presidentially-appointed leadership, its own staff, and the ability to make decisions independently and not subject to veto; jurisdiction over both banks and non banks; and it must not be subordinate to any other bank regulatory agency or agencies. A CFPA inside a prudential regulator would not meet this standard.

To truly end “Too Big to Fail” and crack down on the reckless behavior of the biggest banks, we need strong, specific preventative measures such as leverage limits, capital and margin requirements, limits on counterparty exposures, a ban on proprietary trading and limits on bank size through a low cap on total liabilities. Americans for Financial Reform also supports reimposition of Glass-Steagall type divisions between commercial and investment banking in order to protect Main Street banks from the inherently volatile, reckless gambling of Wall Street.

To prevent another bailout, we need to extend the government’s resolution authority — currently limited to FDIC-insured banks — to cover non-bank financial companies, as well. A procedural hurdle like Senators Warner and Corker’s proposed bankruptcy-first presumption, will allow Too Big to Fail banks to delay during a crisis and hold the taxpayer hostage again.  Only swift government resolution authority that is funded in advance by assessments on the biggest banks will allow America to avoid another season of bailouts

Nowhere was the catastrophic breakdown in our financial system more blatant than in the system of issuing credit ratings for securities—a dilemma echoed by dozens of economists, regulators and Members of Congress in the media and at congressional hearings.  The conflicts of interest inherent in the “issuer pays” business model have corrupted the basic mission of credit rating agencies, which are subject to weak regulatory oversight and provide insufficient data, assumptions and methodologies behind their ratings.  To address these weaknesses, we believe that the following elements should be included in legislation: establishment of an independent ratings clearing house to make rating assignments; reduction of reliance on ratings on a case by case basis; increasing SEC authority, particularly with regard to anti-fraud authority and post-rating surveillance; requiring greater transparency and improving governance practices by requiring representation for credit ratings users on rating agencies’ boards of directors; ensuring accountability through expanded legal liability; and establishing a universal rating scale for municipal and corporate bonds.

Effective regulation of the derivatives markets is likewise crucial to our future economic stability. Standardized futures, swaps, and derivatives must return to clearing and open exchange trading to provide adequate risk protection for counterparties and the financial system, as well as price discovery for users of these transactions. Financial “innovation” to exploit loopholes poses systemic risk, and for this reason AFR does not advocate any exemptions to regulation of derivatives; however, to the extent that any exemptions are enacted to protect corporations that use derivatives, they should be restricted to bona fide commercial hedging of physical commodities by end-users, so that they do not permit hedge funds, private equity firms, exchange traded or index funds, and other commodity speculators to avoid regulation.  It is also crucial that federal regulators be given full authority to set and enforce position limits, including across-market aggregate position limits, and limits on activity on foreign boards of trade that allow U.S. access.   Position limits are critical to preventing excess speculation from flooding into commodity markets – as occurred last summer – and driving another economically devastating energy price bubble.

Protections for average investors have suffered years of neglect, leaving investors with inadequate disclosures regarding the investments they purchase, and inadequate protections in their dealings with investment professionals.  The latter is particularly troubling given the high degree of trust investors place in the brokers, financial planners and investment advisers they rely on when planning for retirement, saving for college, and other major life expenses.  Unfortunately, some of these investment professionals have proven all too willing to abuse their position of trust.  The draft bill includes a strong set of proposals to address neglected investor protection priorities, most importantly by imposing a fiduciary duty on all those who provide investment advice to act in the best interests of their clients and restricting industry use of forced arbitration agreements.  Unfortunately, the fiduciary duty in particular has come under attack by brokers and insurers using misinformation and scare tactics to try to preserve the anti-investor status quo.  We urge you to ignore these self-serving industry arguments and act instead to protect investors who have suffered devastating losses in the financial crisis and who need and deserve the protections included in the draft bill.

Financial oversight has failed to keep up with the realities of the marketplace, characterized by globalization, innovation and the convergence of lending and investing activities. As President Obama said during the campaign, “We need to regulate institutions for what they do, not what they are.”

This means that private investment funds, including hedge funds, private equity and venture capital, and their managers, should be subject to more stringent oversight. New regulations should, at minimum, require greater transparency and ensure that managers act in the best interests of investors. Managers of private equity and hedge funds must be registered with the SEC as investment advisors, and the SEC must have the power to regulate the funds themselves and require disclosures to investors and the public.

Senator Dodd, we appreciate the enormity of the task that faces you, the Senate Banking Committee and the entire Congress and Administration in seeking to reform our deeply flawed financial regulatory structure.  An out of control cycle of deregulation, and the excessive influence of the biggest banks and Wall Street firms were fundamental sources of the financial crisis that has devastated our economy, cost millions of jobs, millions of homes, and trillions in retirement savings.  We are convinced that the American public strongly supports financial reform that will change the rules, and hold Wall Street accountable, and your leadership is crucial to accomplishing this goal.


Americans for Financial Reform

Following are the partners of Americans for Financial Reform:

All the organizations support the overall principles of AFR and are working for an accountable, fair and secure financial system.  Not all of these organizations work on all of the issues covered by the coalition or have signed on to every statement.

·  A New Way Forward



·  Adler and Colvin



·  Alliance For Justice

·  Americans for Democratic Action, Inc

·  American Income Life Insurance

·  Americans for Fairness in Lending

·  Americans United for Change

·  Calvert Asset Management Company, Inc.

·  Campaign for America’s Future

·  Campaign Money

·  Center for Digital Democracy

·  Center for Economic and Policy Research

·  Center for Economic Progress

·  Center for Responsible Lending

·  Center for Justice and Democracy

·  Center of Concern

·  Change to Win

·  Clean Yield Asset Management

·  Coastal Enterprises Inc.

·  Color of Change

·  Common Cause

·  Communications Workers of America

·  Community Development Transportation Lending Services

·  Consumer Action

·  Consumer Association Council

·  Consumers for Auto Safety and Reliability

·  Consumer Federation of America

·  Consumer Watchdog

·  Consumers Union

·  Corporation for Enterprise Development

·  CREDO Mobile

·  CTW Investment Group

·  Demos

·  Economic Policy Institute

·  Essential Action

·  Greenlining Institute

·  Good Business International

·  HNMA Funding Company

·  Home Actions

·  Housing Counseling Services

·  Information Press

·  Institute for Global Communications

·  Institute for Policy Studies: Global Economy Project

·  International Brotherhood of Teamsters

·  Institute of Women’s Policy Research

·  Krull & Company

·  Laborers’ International Union of North America

·  Lake Research Partners

·  Lawyers’ Committee for Civil Rights Under Law

·  Leadership Conference on Civil Rights

·  Move On


·  National Association of Consumer Advocates

·  National Association of Investment Professionals (NAIP)

·  National Association of Neighborhoods

·  National Coalition for Asian Pacific American Community Development

·  National Community Reinvestment Coalition

·  National Consumer Law Center (on behalf of its low-income clients)

·  National Consumers League

·  National Council of La Raza

·  National Fair Housing Alliance

·  National Federation of Community Development Credit Unions

·  National Housing Institute

·  National Housing Trust

·  National Housing Trust Community Development Fund

·  National NeighborWorks Association

·  National Training and Information Center/National People’s Action

·  National Council of Women’s Organizations

·  Next Step

·  OMB Watch

·  Opportunity Finance Network

·  Partners for the Common Good


·  Progress Now Action

·  Progressive States Network

·  Poverty and Race Research Action Council

·  Public Citizen

·  Sargent Shriver Center on Poverty Law


·  State Voices

·  Taxpayer’s for Common Sense

·  The Association for Housing and Neighborhood Development

·  The Fuel Savers Club

·  The Seminal

·  U.S. Public Interest Research Group

·  Union Plus

·  United Food and Commercial Workers

·  United States Student Association

·  USAction

·  Veris Wealth Partners

·  Veterans Chamber of Commerce

·  Western States Center

·  We the People Now

·  Woodstock Institute

·  World Privacy Forum


·  Union Plus

·  Unitarian Universalist for a Just Economic Community

Partial list of State and Local Signers

·       Alaska PIRG

·       Arizona PIRG

·       Arizona Advocacy Network

·       Arizonans For Responsible Lending

·       Association for Neighborhood and Housing Development NY

·       Audubon Partnership for Economic Development LDC, New York NY

·       BAC Funding Consortium Inc., Miami FL

·       Beech Capital Venture Corporation, Philadelphia PA

·       California PIRG

·       California Reinvestment Coalition

·       Century Housing Corporation, Culver City CA

·       Center of Concern

·       Center for Media and Democracy

·       CHANGER NY

·       Chautauqua Home Rehabilitation and Improvement Corporation (NY)

·       Chicago Community Loan Fund, Chicago IL

·       Chicago Community Ventures, Chicago IL

·       Chicago Consumer Coalition

·       Citizen Potawatomi CDC, Shawnee OK

·       Colorado PIRG

·       Coalition on Homeless Housing in Ohio

·       Community Capital Fund, Bridgeport CT

·       Community Capital of Maryland, Baltimore MD

·       Community Development Financial Institution of the Tohono O’odham Nation, Sells AZ

·       Community Redevelopment Loan and Investment Fund, Atlanta GA

·       Community Reinvestment Association of North Carolina

·       Community Resource Group, Fayetteville A

·       Connecticut PIRG

·       Connecticut Association for Human Services

·       Consumer Assistance Council

·       Cooper Square Committee (NYC)

·       Cooperative Fund of New England, Wilmington NC

·       Corporacion de Desarrollo Economico de Ceiba, Ceiba PR

·       Delta Foundation, Inc., Greenville MS

·       Economic Opportunity Fund (EOF), Philadelphia PA

·       Empire Justice Center NY

·       Enterprises, Inc., Berea KY

·       Fair Housing Contact Service OH

·       Federation of Appalachian Housing

·       Fitness and Praise Youth Development, Inc., Baton Rouge LA

·       Forward Community Investment (Madison, WI)

·       Florida Consumer Action Network

·       Florida PIRG

·       Funding Partners for Housing Solutions, Ft. Collins CO

·       Georgia PIRG

·       Green America

·       Grow Iowa Foundation, Greenfield IA

·       Homewise, Inc., Santa Fe NM

·       Idaho Nevada CDFI, Pocatello ID

·       Idaho Chapter,  National Association of Social Workers

·       Idaho Community Action Network

·       Illinois PIRG

·       Impact Capital, Seattle WA

·       Information Press CA

·       Indiana PIRG

·       Iowa PIRG

·       Iowa Citizens for Community Improvement

·       JobStart Chautauqua, Inc., Mayville NY

·       Keystone Research Center

·       La Casa Federal Credit Union, Newark NJ

·       Low Income Investment Fund, San Francisco CA

·       Long Island Housing Services NY

·       MaineStream Finance, Bangor ME

·       Maryland PIRG

·       Massachusetts Consumers’ Coalition

·       MASSPIRG

·       Massachusetts Fair Housing Center

·       Michigan PIRG

·       Midland Community Development Corporation, Midland TX

·       Midwest Minnesota Community Development Corporation, Detroit Lakes MN

·       Mile High Community Loan Fund, Denver CO

·       Missouri PIRG

·       Mortgage Recovery Service Center of L.A.

·       Montana Community Development Corporation, Missoula MT

·       Montana PIRG

·       National Housing Institute

·       Neighborhood Economic Development Advocacy Project

·       New Hampshire PIRG

·       New Jersey Community Capital, Trenton NJ

·       New Jersey Citizen Action

·       New Jersey PIRG

·       New Mexico PIRG

·       New York PIRG

·       New York City Aids Housing Network

·       Next Step MN

·       NOAH Community Development Fund, Inc., Boston MA

·       Nonprofit Finance Fund, New York NY

·       Nonprofits Assistance Fund, Minneapolis MN

·       Northern Community Investment Corporation (St. Johnsbury, VT)

·       North Carolina Association of Community Development Corporations

·       North Carolina PIRG

·       Northside Community Development Fund, Pittsburgh PA

·       Ohio Capital Corporation for Housing, Columbus OH

·       Ohio PIRG

·       Oregon State PIRG

·       Our Oregon

·       PennPIRG

·       Piedmont Housing Alliance, Charlottesville VA

·       Rocky Mountain Peace and Justice Center, CO

·       Rhode Island PIRG

·       Rural Community Assistance Corporation, West Sacramento CA

·       Rural Organizing Project OR

·       San Francisco Municipal Transportation Authority

·       Seattle Economic Development Fund

·       Siouxland Economic Development Corporation (Sioux City, IA)

·       Southern Bancorp (Arkadelphia.AR)

·       Community Capital Development

·       TexPIRG

·       The Association for Housing and Neighborhood Development

·       The Fair Housing Council of Central New York

·       The Help Network

·       The Loan Fund, Albuquerque NM

·       Third Reconstruction Institute NC

·       Vermont PIRG

·       Village Capital Corporation, Cleveland OH

·       Virginia Citizens Consumer Council

·       Virginia Poverty Law Center

·       War on Poverty –  Florida

·       WashPIRG

·       Westchester Residential Opportunities Inc.

·       Wigamig Owners Loan Fund, Inc., Lac du Flambeau WI

·       WISPIRG