Interview: Chris Dodd

The passage of the credit card bill [Credit Card Accountability and Responsibility Disclosure (CARD) Act], that was impossible ... for 20 years.

Pretty much.

What changed? I thought that was the most powerful lobby on the Hill.

They were. ... They could never be beaten, so they could do whatever they wanted to.

It wasn't that long ago, the contract -- that page that was hard enough to read even as a single page -- mushroomed into 30 pages within a lot of these contracts, the last line saying, "By the way, we can change rates at any time for any reason, despite everything else you've just read about your rights." And the arrogance of that, the fact that 72 million accounts had interest rate hikes that were astronomical and that people were being dropped, fees were being added -- outrageous conditions were being imposed.

It really began to tip for me -- ironically, it wasn't the people who couldn't meet the obligations as much. They were certainly angry. But all of a sudden, that fairly well-established financially individual or family discovered that their rates went from 6 percent to 24 percent, and even though they could pay the 24 percent, it was insulting to them that some credit card company thought they could get away with it. And all of a sudden this became not an issue just with people who were struggling economically, but [it] became a middle-income, upper-middle-income, affluent issue with people who were furious over the fact that some company was basically charging them rates for which the company or the individual would have either gone to jail, or something worse [would have] happened to them, had they charged those rates only a few years ago.

You mean because they would be loan-sharking rates.

Yeah, loan sharking. And I used to say that organized crime would blush at some of the rates these people were charging. Loan sharking never went this bad, in some cases.

Was there a key moment where you knew you could get this bill out of committee?

I should respect all of my colleagues and their motivations, so I don't want to attribute rationale. But some people come from places that have very strong banking and credit card issue constituencies.

Democrats and Republicans.

Democrats and Republicans. And I know people question, "Why didn't you get this done earlier?" Well, candidly, I didn't have the votes on the committee. I can't get to the floor with a bill I can't get out of committee. And it was always, when I counted noses, I didn't have the votes for it. And that changed with the makeup of the committee. And so all of a sudden, I thought I could get the votes; I wasn't guaranteed it.

There's several of my colleagues who had serious reservations about whether or not we ought to be doing this. There were some that argued that the Federal Reserve was finally beginning to move on this, so what regulatory process did we really need to move? But I spent time. I talked with -- as I do all the time -- I talked with every member of my committee, Republicans and Democrats. I know we divide and sit on either sides of these tables. But as a new chairman -- I've never been a chairman before of any committees up here, [only] on the Rules Committee for a short time -- I view every member of my committee as a colleague of mine and a partner potentially.

And so I called all of my colleagues, as I do on every bill, to hear what they have to say about it. What do they think about it? What are their interests? How do they feel about it? At the end of those conversations, I felt pretty sure that I could maybe get the bill out, not by much. And as it turned out, I got it out by one vote, a margin of one vote. It came out 12-11 out of the Banking Committee. But in my conversations with some of those 11, I felt if I could get the 12th vote out that a lot of those 11 votes would be willing to work with me, maybe on the floor of the Senate.

And as it turned out, the bill finally passed -- I forget the vote; it was 90-5 or something like that -- and I ended up with a substantial number of the 11 who voted against the bill in committee actually voted for it on the floor of the Senate.

What was the compromise with Sen. [Richard] Shelby [R-Ala.]?

There wasn't any. In the end, actually, the bill was a little stronger on the floor than it was in committee. Usually it's the other way around. It usually gets weaker because you have to expand it.

And I think Sen. Shelby was concerned about risk assumption issues -- not an illegitimate issue, by the way. But he let me know early on that he thought this was a very legitimate issue and one that he would like to be supportive of. So I was not surprised, in the committee moment, he held back. But he certainly communicated to me in his own way that he would [be] supportive of this, as he was of course, in the final analysis.

And there were a number of members that way. Some members had a lot more interest in the interchange fees than they did actually on the consumer side of this. And that's a very legitimate issue, the interchange fees issue. It's a complicated issue. And I decided I couldn't take on both issues at the same time, that I might hurt the bill overall. So the interchange issue has great legitimacy to me. In fact, I've raised this with the Federal Reserve and asked them to do the analysis for me on how could you modify interchange fees. Small businesses get whacked with these fees, small retailers. And so I'm looking at ways in which we might have a separate piece of legislation to deal with the interchange fees. ...

One of the key questions that people in the industry have said is that if you keep putting pieces of legislation in, like that legislation, which restricts what they can do, and something like the Consumer Financial Protection Agency [CFPA] that will have even more restrictions, there will be a tipping point at some point, where it's no longer profitable for them to be in business to lend.

Baloney. What a line of baloney that is. It's a great business. Credit cards are valuable instruments. It's the industry that got carried away, got arrogant and basically shifted its business model. For years the business model was, before they'd extend a credit card to you, they wanted to know you could pay, or if you couldn't pay that you have someone co-signing it or co-sponsoring it with you.

It was a responsible model. There also was a time where -- you and I may remember those days; maybe not you, but I certainly do -- when I'd buy an item at the store and I'd get up in line to pay for it with a credit card, and I'd pray and hope that my balance was OK, that that phone wouldn't ring and they'd look at me and say, "You've got to put the item back," because I had gone over my credit limits. And that wasn't a bad thing. It had some restraint, responsibility on the consumer side. Today all of that went out the window. In fact, they welcomed that business because they could end up charging me a lot more for that over-the-credit-line limit than would otherwise be the case.

So the models changed. They began to market to the people that could least afford them. Instead of being careful about who the customers were going to be, to make sure they could pay, they actually welcomed the consumer that was on the margins economically, because you could get a lot more out of that person if they ended up paying just the bare minimum payments each month over an extended period of time, spending four, five, six, seven times the value of that good or service. And they got all the benefit of that.

So the model shifted in many ways. And that's what happened. So the idea that they're going to scrap all of this and move away from it, please, you're not credible. I was born at night but not last night. Try a different line. Get back to your business model. Remember the customer. When businesses forget their customer here, they get themselves in trouble, whether it's credit cards or anything else. And keep in mind that consumer of your products.

And if you keep them in mind, you're going to do very well financially, and they're going to do well. And you're going to have a longstanding, profitable relationship.

They say, not publicly, that in fact they're not really that worried about your legislation, the one that passed, because they can game it. They can figure out ways around it. It's got loopholes. Some of them appear to be identified recently in variable rates and other changes they're making. What do you think? Is it tough enough?

I don't know. We'll find out, obviously. I did as much as I could do on things like double-cycle billing and universal default and balances and reaching back and raising rates. In fact, we got a great response from the chairman of the Federal Reserve.

And by the way, for those who think they can raise these rates before some of the stuff goes into effect, I've been told by the chairman of the Federal Reserve that they're going back to Jan. 1, 2009. You screw around with these rates, you could have the Federal Reserve all over your back; if you fool around by trying to raise them quickly before some of these provisions go into effect, they'll hammer down on you. It was great to get that news.

Yeah, if they want to do that, we'll go back at this again. I mean, we can play games forever if you want. Why don't people just smarten up and decide to go back to the business model that makes sense, which was very profitable? It served people's interests. And it's those sort of practices which infuriates the public, things like the balance is due on July 16. You and I would immediately assume, I guess that means the end of business on July 16, 4:00, 4:30, whatever the end of the business day is. Oh, no -- it was 10 a.m. on July 16. That's the kind of gimmickry that went on. No paying by phone, no paying by e-mail. Come on. It's the 21st century. Having the postal address go to a postal area in a state that is historically late to get to you and so forth, so they could automatically know they're probably going to arrive late so they can charge you additional fees -- I mean, that's the sort of stuff that went on.

And if the industry wants to play that way -- and I don't believe the responsible ones do; there are the outliers basically who want to milk this system -- then we'll respond to it, either through the Federal Reserve in regulations, or I'll do it legislatively.

So the Federal Reserve is onboard with what you're doing.

Well, finally. Late in coming, candidly. ... And that's the reason you're seeing a tremendous amount of interest in the idea and promoting of a consumer financial product safety agency that will have its eyes, that can look over the entire array of financial services from a consumer standpoint.

We did three great things in the Depression. It gave us roughly more than 50 years of pretty good stability, tremendous amount of economic growth, great wealth creation of the country: the Securities and Exchange Commission [SEC], the Federal Deposit Insurance Corp. [FDIC] and Glass-Steagall [Act]. Now, Glass-Steagall, I'd make a case in certainly modifying that. The world had moved along. You need to do some things differently. But ... those two things ... basically ran things well.

When you get away from those models of keeping in mind the consumer -- and by the consumer, I mean the shareholder, I mean the depositor, I mean the policyholder, I mean the borrower, the people who come in that door and assume different risks. You put your paycheck in a bank, for instance, there's an assumption of risk that it's going to be safe there. You buy a stock in a company, there's a different assumption of risk you have. You hope to get something back. You hope you made a good choice and all of that. You want to make sure it's not going to be abused. But that's a different risk assumption than depositing your paycheck. When you take a mortgage out, that's a different risk assumption than buying a share of stock or even putting a deposit of your paycheck in.

So getting back from the consumer standpoint -- [we've] been drifting and moving further and further and further away, and we need to get it back to that point again.

You mentioned Glass-Steagall, which most people in the country don't remember. That was in 1999 that it was basically abandoned completely.

Well, not abandoned completely. We modified it. And look, I voted for it.

You voted for the deregulation.

Yeah. I voted against it in the Senate. But by the time the bill came back, worked on it in the compromise, it looked really good.

The big debate, by the way, was over the Community Reinvestment Act. There wasn't much of a debate about Glass-Steagall. That was '95 or '93 or something, or '94, whatever it was. And the idea was that we had reached a point where consumers wanted efficiency -- they wanted one-stop shopping, and they deserved it in this 21st century we were about to enter into, [and] that we ought to prepare for that. The world was moving in that direction, that we could create these firewalls between commerce and banking, and they would be more than adequate to protect against the problems that we'd seen in the past. We were wrong. And as a result, the firewalls didn't work.

And we had regulators that frankly didn't want them to work. ... The cops left the streets. There was no one on the beat. And the message out there to the [financial institutions] was: "Go ahead and do what you want. The market will take care of this. The market will protect people." That was the mentality that took over. ...

Some people have said that the reason that this downturn has been so severe is that we had the appearance of regulations, so people thought somebody was watching, but nobody was.

Well, that's a fact. We now know. And it wasn't just a question of being recalcitrant in their responsibilities. It was an intentional decision not to. ... That's a big difference between misfeasance and malfeasance. I think it's malfeasance, or certainly borders on malfeasance, where they literally knew they had the responsibility and made the conscious decision not to exercise the powers that they had. Forget about the ones that may have gotten watered down a little bit. There was a lot of regulator power and authority out there. It wasn't all gone. But they walked away from it. They believed, frankly, the market would take care of this.

One of the more surprising things that seems to be developing, the unemployment rate, which is now close to 10 percent nationally and over that in many places in the country, it apparently directly parallels the default rate in credit cards. And the default rate in credit cards actually is now going faster than the unemployment rate. The banks may not make money on credit cards this year for the first time in 30 years. Any possibility you'll let them off the hook a little bit?

No. They made this bed.

But then if they start pulling back how much they're going to lend in serious ways, who they lend to --

Well, look. You're marketing to infants, you know, and kids on college campuses and so forth. There's a responsibility the consumer has, and you and I need to say that. ... Financial literacy is not an illegitimate issue.

But look, you're taking advantage of people, knowing their circumstances. The people are paying mortgages on credit cards and doing other things. They can at least afford to do so. There's a consumer responsibility, but the issuer has to assume responsibilities as well, and they didn't. Now, they weren't anticipating these rates of unemployment, maybe thought this income or the economy was going to continue to rise at the rates it was forever and ever and ever.

I don't know where they get those ideas historically, but let's assume for a second that's what they were thinking -- or on their watch, anyway. They may retire or move on to some other job, and so they wouldn't have to pay the consequences of it. But when you go out and you market specifically to constituencies that are on the margins economically -- and there are ways of doing this. There's no reason why you can't set underwriting standards for someone to be able to get a line of credit that's reasonable, given their economic circumstances, that can help them. But when you lure them into circumstances -- you know fully well they're barely going to be able to meet those responsibilities, but you're going to get as much out of them as you can for as long as you can.

And now to turn around and say, "Woe is me. Give me some protection and help me throughout all of this because I've now got people defaulting on all of this because they're not able to meet their obligations," I think the industry, frankly, has no one to blame but themselves for that.

... We were talking to the head of a large credit union in North Carolina. They live within the rates of the state usury law. They can't charge more than 18 percent, and their highest rate is 12 percent on their credit cards. And the question comes to mind, why don't we have a rate cap on credit cards?

A lot of things.

On fees.

Well, because you know the reason why, what happened. Back with the Supreme Court and the famous Marquette [Marquette National Bank v. First of Omaha Service Corp.] decision, which ruled that if you were home-headquartered -- I guess that's what the terminology here is -- in a jurisdiction that did not have any caps, and you were marketing into other areas of the country, that the fact that the home-headquartered rate did not exist allowed you to charge whatever the rates. ...

Right. I understand what happened.

Now, why haven't we responded to it?

Yes, why haven't we put rate caps in? Why haven't we had the fees under control?

When you and I talked years ago, I was hopeful about credit card legislation. And if you had said, "When do you think?," I wouldn't have said -- I forget how many years. What, five or six years ago? I would have thought a year or two from then. So I want to be careful about predicting. But I think you may get to that, because again, these are basically usurious rates -- literally what you could have been arrested for a few years ago.

And I think having some restraint on this -- and it needs to be done thoughtfully, because obviously there are lenders that lend on a seven-day basis, on a yearly basis and so forth, so it's fair, but nonetheless, ones that do put some restraint on this. I'm an advocate of it. I think it's sad that again, we've had people just abuse the privilege of doing business like they are and gouging people in the process for no reason at all. I mean, I had cases in my state where [after] 40 years of having done business with a credit card company, small business, husband and wife, three days late once, and they went from around 6 percent to 24 percent without -- that's it. ...

But the industry says: "Well, if you don't let us do that and offer cards to people and credit lines to people without really great assets, then they're going to go to payday lenders. They'll go to a more, let's say, usurious operation that will charge more."

That's why we have to work on that as well. I mean, I wouldn't separate those out. Payday lenders usually are different in the sense they usually lend you money for five or six days or seven days, whatever. So it's in different circumstances. And again, I'm not opposed to getting people who are less well off having even, you know, a home mortgage.

Subprime lending is not a bad thing. The CRA, the Community Reinvestment Act, works. Had very little problems with foreclosure rates on CRA recipients. Why? Because banks who do Community Reinvestment Act lending must meet the underwriting standards. That person who comes in doesn't get a no-doc loan where nothing is required down and no obligations whatsoever. They'll take a person in who is struggling, maybe not doing terribly well, but under the circumstances can meet those obligations and get them started.

And certainly the same rules can apply in credit. I'm not going to say give an unlimited line of credit, and I'm not going to give you a line of credit of $50,000 or something if you're making $25,000 or $20,000. But certainly you can have a line of credit that can help. There's nothing wrong with that. And you could make money off it, too. And that consumer is going to have the benefit of credit and a line of credit to help them along the way. But they're going to be able to manage it well, both sides being responsible.

What we're told by people in the industry is: "OK, we knew we had been abusing things for quite a while. There was lots of competition." That's their excuse for why this was all happening. Something was going to happen. This legislation passed. But now, any move to have price caps, to have a Consumer Financial Protection Agency, that they call a huge power grab: "We're going to stand firm against that." And in fact, so are many agencies of the government already that exist to do that -- they'll be against it, too.

... That doesn't surprise me. What I do find surprising is these institutions that, by their own admissions, according to what you just told me, admit that they helped create this mess, are now going to turn around and say, "Blame the consumer." Blame the individuals, in effect, that were abused by a process; that somehow protecting them, raising issues about that borrower, shareholder, customer, it doesn't have legitimacy.

In fact, had we been doing a better job about that consumer over the years, I suspect now the consumer would be better off, businesses would be better off. So it's sort of insulting in a way that institutions are saying, "Well, I'll show you. You insist upon us protecting those consumers, by golly, we'll make it tough on those consumers," as if you haven't already, when you've got, you know, 10,000 people a day losing their homes. ...

One of the people we interviewed, a law professor, said to us that one of the things he can't fathom is that the federal government, in the bailout, the TARP [Troubled Asset Relief Program] and TALF [Term Asset-Backed Securities Loan Facility], is buying credit card securities on the market to maintain a market in those securities. At the same time, those organizations are lobbying against consumer regulation and protection.

I don't find that terribly stunning. I'm disappointed by it, but I'm not surprised by it. ...

We need to stabilize the financial system of which these institutions are a part and then simultaneously insist that these institutions keep in mind the people who walk through the door and depend upon them for their economic security, both in the short and longer term -- both.

We had two reputations. One, you could make money here. People could make a profit. You could do well here. And the second reputation we have, or had, was it was safe. Doesn't mean you were automatically going to get a return on your stock that you bought, but you never worried about the system failing you. It wasn't corrupt. It wasn't going to walk away from you. It wasn't going to abuse you. It wasn't going to take advantage of you. They were concerned about you.

That was a great reputation. And frankly, that reputation has been shattered. Both reputations have. And we need to get them back -- in a way, particularly the latter one. ...

Are we headed for another downturn?

Well, I hope not. It will be interesting to watch. ... My hope is -- and I believe most of us hope this is an indication that maybe we're beginning to see that we can come out of this. It doesn't mean that we're going to get back on our feet immediately, but we're not going to be in that depression that we were worried about even a few weeks ago. It's a deep recession, and it's troublesome. And the unemployment rates are climbing and are worrisome.

State governments are basically bankrupt.

You could cite statistics away that would, like I say, contradict this. But your question to me was, [is] there a sense maybe that this thing is going to get better? Not in the next six months. I'm not a Pollyanna, and we're talking about all of a sudden this is going to be behind us. I still think we're going to have some serious issues to grapple with. But the sense that we're getting our arms around this I think is to some degree settling in. Now, obviously we've got a lot of work to do, but I'd like to believe we're heading in the right direction.

... There seems to be one thing that people agreed on last time, more or less, and they agree on even more now when we talk to them: that disclosure doesn't work.

Well, in some cases doesn't. But what kind of disclosure?

Well, like you buy a mortgage and you've got 50 pages of disclosure.

That's not disclosure.

You get a credit card agreement and the banks say, "The government mandated that we do it that way."

Yeah, I know. When was the last time you bought a pharmaceutical product off the shelf, not one that you've been prescribed by a doctor, and you pick it up and you want to read on the back of that bottle of pills, whatever it is, what the ingredients are?

I've got a daughter with severe food allergies, OK? I mean, [she walks] around with the EpiPen, even airborne stuff. So I am very label-conscious. Everything I'm label-conscious on. And I've got to tell you -- and I'm not an uneducated guy; I've got a law degree; I sit up here and help write legislation on things -- I have no idea what I'm reading. Now, there's full disclosure, but there are 11 different words to describe milk.

So giving me 50 pages to sign, you may call it disclosure. I think it's anything but. There's no clarity. You've got to have a legal degree, and maybe an advanced one, to even understand what's being disclosed to you. So we've got to do a lot better on this. I think disclosure can do a lot, but just calling it "disclosure" doesn't make it disclosure.

... We seem to be at a tipping point in whether or not the recovery will happen anytime soon or whether we're going to have to go through harder times. And the one question that people in the banking industry keep bringing up is, it seems contradictory to them to be battered about not lending enough, on the one hand, and on the other hand being told, "Don't lend to some because you shouldn't be lending to them. It's too dangerous," that they're caught in the middle. Which way should they go?

You know, it's the culture. And it's a longstanding culture, so changing is not easy. Let's just take a mortgage. I was talking to somebody the other day. A woman and her husband make about 50 grand a year; somewhere around 2004 or so, got a no-doc, no-down-payment, $425,000 loan to buy a home. No possibility of that family being able to meet that obligation. That house today is now worth $210,000.

This family had a $60,000 credit card debt, and they paid off all but $10,000 of it. You'd say, "Way to go." You know what the bank says? "If you can pay off that credit card bill, you can pay off the $425,000 mortgage," instead of putting them in and recognizing that house today is only worth $210,000 or whatever it is, keep them in the home. That's probably a nut they can make, that amount. Figure out what that interest rate is.

So you want them to cram down [the value of the mortgage], basically. ... But they defeated that legislation.

Yeah, but that's the value of the property. Why are you going to foreclose on them? Do you think you're going to get the $400,000 for that property from someone? No, you're not going to get that. Why not keep that family in there meeting that obligation, because that's what that property is worth today? They then have a chance, that family, of seeing the equity improve in that property. That's wealth creation for that family. That could help them in a health care crisis. That might send one of their kids to college because that house might be worth $300,000 in 10 years from now, and they're still in it.

You've stabilized that family. You've given them a future. You're getting paid. Yeah, you're getting paid less than what the original deal was, but you shouldn't have put them there in the first place. Zero. Sorry, we're not going to do that. So when I hear the banks talk about this stuff, they know how to do this. They know what they can do to help themselves, help that customer, that consumer. And they're just saying no to them because the culture is, over the years, get them out of the property. The best answer is get them out; put it on the market; someone else will buy it. We'll get someone to come in and pay the price, and we're in better shape. That was the culture. ...

Explain how powerful the financial services lobby was and then how powerful they are today.

Well, that's hard to answer because, again, it's individuals. Some have more influence than others. They've been historically probably more powerful than they are today because, obviously, the times were better; at least they appeared to be better.

And so to that extent, any efforts to change anything were really very hard to pull off. I mean, as someone who tried credit card legislation for the last 20 years, I always get around 30, 35 votes. I think that was my high-water mark at one point. ...

Obviously succeeding this year came out of my committee with a one-vote margin, but the credit card bill, actually it's a bit stronger bill. Usually it's the other way. It comes out of committee stronger; it gets weaker. This case actually we have it a bit stronger on the floor, and we carried it I think 90-5. ...

So, again, I think the influence, because of what we're in -- because people are angry, because they have lost jobs, because their retirement, their health care, their homes, their frustration, plus they see that their tax dollars have gone into many of these financial companies, where they're turning around and watching these absolutely outrageous bonuses being paid, because companies succeeded in no small measure because the taxpayer helped shore up the financial community stability.

So people have said to us, "[This credit card bill] got through Congress, but they're raising our interest rates now --"

Well, that's true.

"They're changing the terms. Congress gave them eight months to put it into law. ..."

Yeah, the original bill I authored said it's effective the day the president signs it. That was my original bill. But I never would have gotten out of committee with that bill. I got it by one-vote margin, so we had to change the dates on it. We moved it up to February of next year. I would have loved to have done it earlier than that, but I didn't have the votes to do it.

... Consumer Reports said half the people they surveyed either had their interest rates raised or their cards canceled or fees increased. And there's a lot of anger out there.

They haven't read the bill clearly enough -- but the companies have -- because they also have a claw-back provision in the bill that allows it actually to go back. And we address some of those outrageous or egregious increases that have occurred, even though the date is not as early as some would like it, as I would have liked it. There is a provision in the bill that allows us to go back retroactively on these companies.

Well, when we interviewed you back in early July, you said that you had already talked to the Federal Reserve about possibly doing something about this.

Well, they haven't done it yet.

Nothing.

No.

The financial services industry apparently has given as much as $30 million to the members of your committee over the last election cycle.

Mm-hmm.

Seven million dollars to your campaigns.

Mm-hmm. Lot of good it's done them.

Well, maybe with you, but it seems they slowed things down. They got their eight months to raise fees and interest rates. I mean, they do still have a lot of power.

We passed a bill that was landmark legislation. [We'd] tried for 20 years to put some provisions in place to deal with fees and rates of the credit card industry. We could never succeed. I never could get the votes. We finally got the votes to pass. According to the Consumer Federation of America -- landmark legislation.

Would I have liked it to have been tougher? Yeah. But I'm dealing in a body here where I don't get to anything I want to do all the time. I've got to produce the votes to pass things. And so I did the best I could, got the best date I could on this thing. And that's where we are, and it's going to work.

Are you saying they're wasting their money giving you campaign contributions?

Not necessarily. I listen to people.

Listen, if I could change anything in America, it would be the reapportionment and campaign finance laws. I'm for public financing; I'm for anything else that would get us away from the system we have. But it is what it is, and so I appreciate the fact that they're willing to support it, as long as they understand that by doing so it doesn't necessarily buy you a vote or a position one way or the other, for or against things here. And I think that's true of most of the people I survey. If other people are different, I understand that. But anybody who thinks they can come in and make a campaign contribution and is going to get an outcome based on that is certainly terribly mistaken.

To the skeptics out there listening to you --

Yeah. No, I know.

-- what are they to think with all of these millions of dollars coming in?

What do you do about it? Obviously, change the campaign finance laws. And believe me, I've tried over the years to do it. We haven't gotten very far. I managed the McCain-Feingold campaign finance laws on the floor of the Senate. And even with all of that, we need to reverse that Supreme Court decision, Buckley v. Valeo, that said for the purposes of federal elections, money is speech. And obviously, until you reverse that concept, where money is not speech -- as it shouldn't be, in my view -- then we're going to be faced with this problem.

The Consumer Financial Protection Agency, the original concept of it, you were in favor of it, right?

Yeah.

But it appears that it's being watered down as it's going through the House right now. Ninety-eight percent of the banks have been exempted. "Plain vanilla" [financial products] -- that is, the credit card standard or mortgage standard -- that's out. Pre-emption is being, I think, debated today or tomorrow. So it appears that the Consumer Financial Protection Agency -- and the administration apparently has backed off certain provisions of it, at least in other members that we've talked to -- is it getting watered down?

Well, we haven't written a bill yet over here. And I have great respect for [Chairman of the House Financial Services Committee] Barney Frank [D-Mass]. He's about as strong a consumer advocate as you're going to find in the Congress of the United States. ... I'm not going to sit here and prejudge Barney, what he's trying to do to get a bill out of his committee, because I know where he is; I know what he would do if he could do it on his own. ...

And we're going to try and have a very strong consumer financial product safety agency. But I've got to deal with the committee; I've got to get to the floor; I've got filibusters; I'm going to have to produce supermajority votes to even bring matters up because of the rules in the United States Senate. So I'm not going to sit here and damn the House and damn Barney Frank and damn his committee, for I know they're doing the very best they can to get as strong a bill as they can possibly get. ...

Barney's doing his very best. He's got great members on the committee. I've got a lot of confidence in him. ... But it isn't up to Barney alone. He's got to produce the votes in his committee and on the floor of the House of Representatives. It's not about Barney retreating; it's what he has to do. He's a very good legislator.

But is it a reflection of the power of the industry that these things are happening?

It is to some extent, but there are also people who have views they hold even in the absence of contributions. I mean, they believe this stuff -- that having a separate agency is going to create great conflicts and slow things down and make it difficult for us to maintain a leadership position in financial services. People believe this in the absence of their campaigns. They actually believe it.

But they say it's a big power grab. You want to create this new agency that is going to take power from other agencies.

And there are actually people who believe that and [are] motivated by what they honestly believe. And I have to deal with that. I've got a lot of that over here. And I believe they're sincere in those beliefs. I think they're wrong, but I don't think their decision to be for that position is motivated because someone gave them a campaign contribution. Now, maybe in some cases, but I think the majority of people unfortunately believe a lot of this stuff, that that is going to make life difficult for us to create wealth and jobs and all the other things that you and I are supportive of. I disagree with that. But I serve in a body with 99 other people over here. Barney serves in a place with 434 other people, and trying to navigate these waters and produce the strongest and best bills we can is always a challenge. And campaign contributions play a role, but not the exclusive role. ...

The question really is, credit unions live with an 18 percent interest cap.

Yeah.

And you voted for an interest rate cap.

Right.

[You were] in the minority, obviously.

And what did we get? Thirty votes, I think, or 32 votes or something.

Right. But what's so outrageous about capping interest rates?

Well, it's not. In fact, for years we did.

I mean, we had limitations on this stuff. In fact, you went to jail. Someone once said that the Mafia would blush at some of the rates that are being charged today. And it all goes back to that decision that said if you are as a corporation, a credit card company, located in a place that did not have any limitations on interest rates where your headquarters were, that you could then market in every other state despite those states having limitations and set whatever rate you wanted to. So that decision has cost us a tremendous amount to the point where you literally have people paying 30, 35 percent interest rates on credit card charges.

We ran into some with a 47 percent.

Well, then, yeah. Yeah.

Because it's whatever the market will bear.

Yeah.

... The story is that you may propose one big agency to regulate the financial system. Would that also include a separate Consumer Financial Protection Agency?

What we're talking about is having the systemic risk regulators, so that looking over this whole array of things that happen out there that pose great risk to the entire system. I'm looking at more of a collegial approach on that, including the Federal Reserve, but others as well. So I have different sets of eyes looking at everything, including products out there than can cause systemic risk.

And then a prudential regulator, which is basically the day-to-day regulator -- what do we have now, four or five? And so you have what they call "charter shopping." That is, you go around and find the regulator of least resistance, as we saw happened with AIG [American International Group], happened with the Countrywide, where you got a regulator that frankly was asleep at the switch -- and that's being generous in my comments. And so I'd like to consolidate that where you have transparency and accountability; everybody's playing by the same rules. You have a lot more ability to watch what's going on in one than trying to keep your eyes on four or five. ...

We're talking about a separate agency, a consumer financial product safety agency. Their sole responsibility is to keep an eye out for what happens to shareholders, depositors, policyholders -- the consumers and users of financial products. I fully accept the notion of the safety and soundness of the financial institutions is a very important function, but to ask the same person to be responsible for safety and soundness as well as what happens to that consumer [doesn't make sense].

The greatest accomplishments, in my view, of the Depression-era legislation -- well, there were many, but two that really ring true to me were the Federal Deposit Insurance Corp. and the Securities and Exchange Commission. Those were consumer ideas to guarantee that consumers would be protected. When you deposited your paycheck in a bank, it was a way to protect that, so you didn't have a run on those banks and lose that hard-earned money, and when you invested in the future of a business or corporation -- you bought a share in that -- that you weren't going to be abused and defrauded in the process. They were consumer protection. They were looking out for that person who comes into the process at this level, not from the stability on down. And I think we got away from that, and we need to get back to it.

... When are you going to have a bill? When is it going to be through committee?

... It's all about timing and rhythms in a place like this as well, and the pace you use and when people are ready.

We're doing a lot of educating. We've had 71 hearings this year in the Banking Committee, over 30 of them just on this subject matter alone, bringing in a lot of people to listen to various ideas and what makes the most sense. And we're now ready to write. My hope is that I can get a consensus bill. I've got good members, Democrats and Republicans, on this committee -- differing points of view, but good people. And if I can get a consensus bill out of here that does what I think needs to be done to restore people's confidence in our financial system, then that will be a great achievement. ...

I don't want it to spill over too much into next year because I know what's going to happen if that happens. Things are getting better in the country. That's great news. We all applaud that. I'm not disappointed by that. But I know if they do, memories are short in this country and they forget what happened. In a sense you might people say: "Well, look -- things are going great. Market's doing well, people are making money, housing market's doing better -- why do you want to change all of this? Why do we need to do that?" And if we miss that window when people understand the sense of urgency about not having a repetition --

And this isn't all about just looking in the rearview mirror to fix yesterday's problems, which we should do, but also looking ahead. How do you provide the assurances and the confidence that your financial architecture in this country is going to be sound and secure, that you can buy that share of stock, you can deposit that paycheck, you can buy an insurance policy, and you don't have to worry that somebody's going to take you to the cleaners for doing so?