The National Association of Manufacturers today sent a Key Vote letter to the U.S. Senate expressing the NAM’s support for the Chambliss/Shelby Substitute Amendment (SA 3816) to S. 3217, the super-expansive Restoring American Financial Stability Act, the financial regulation bill. Excerpt:

NAM members believe strongly that any derivatives reform effort should ensure business end-users’ continued access to OTC derivatives, providing them with greater financial certainty and allowing them to allocate resources to core business activities. In addition, we have called for clear exemptions from central clearing, bilateral margining and exchange-trading requirements for business end-users to avoid drawing large amounts of capital from business operations, including job creation.

We have serious concerns, however, that the current end-user exemption in S. 3217 (and in the pending Dodd Substitute) is not strong or clear enough. In addition, other provisions in the derivatives title could effectively eliminate the exemption for many companies and, in some cases, subject them to capital and margin requirements or higher costs.

Key votes, developed by a committee of NAM member companies, are used to determine a member of Congress’ rating on manufacturing-related measures.

A major section of S. 3217, the Restoring American Financial Stability Act, establishes the Bureau of Consumer Financial Protection with the broad authority to enforce violations of whatever strikes its fancy. At the same time, the financial regulation bill empowers state attorneys general to embark on their own exciting adventures of enforcement.

The Section is Title X, entitled the Consumer Financial Protection Act of 2010. As the title’s Section 1031 lays out, the law gives the Bureau the authority to act against “a covered person or service provider” that commits “an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service…”

So now “unfair” is going to be a crime? That’s a vague standard, as are all the terms used in the list of offenses. The Bureau is supposed to develop the rules that further define its authority, and one hopes those rules clarify and limit the offenses. But it wouldn’t surprise us that enough ambiguity remains to invite arbitrary enforcement based on subjective standards.

Even more worrisome is that the bill also authorizes the 50 states and their attorneys general to enforce the same provisions. From Section 1042, “Preservation of Enforcement Powers of States”:

1) ACTION BY STATE- The attorney general (or the equivalent thereof) of any State may bring a civil action in the name of such State, as parens patriae on behalf of natural persons residing in such State, in any district court of the United States in that State or in State court having jurisdiction over the defendant, to enforce provisions of this title or regulations issued thereunder and to secure remedies under provisions of this title or remedies otherwise provided under other law. A State regulator may bring a civil action or other appropriate proceeding to enforce the provisions of this title or regulations issued thereunder with respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law, and to secure remedies under provisions of this title or remedies otherwise provided under other provisions of law with respect to a State-chartered entity.

Alarmingly, there’s nothing in the legislation that would require the state AGs to stick to the same standards the Bureau of Consumer Financial Protection will promulgate. The state AGs will enjoy free rein to sue whomever they want in state court for a violation of this new consumer financial protection statute.

Some state attorneys general also engage in the dubious practice of hiring private law firms to carry out the state’s litigation. As Victor Schwartz, who chairs the Public Policy Group at Shook, Hardy & Bacon, explains it to us:

The primary motivation of these private attorneys is to maximize an award or settlement amount; motivations which may directly conflict with the public’s interest in ensuring that justice is achieved. This profit-seeking objective is particularly problematic when the private attorney works on a contingency basis.

It’s not hard to imagine: An ambitious attorney general deciding to file a civil suit on behalf of all the state’s citizens against some company that did something “unfair,” and then hand over the litigation to a private law firm interested in the biggest payout possible. It could be good politics, but it would be hell on the rule of law.

The Senate this afternoon again failed to invoke cloture on a motion to proceed on S. 3217, the financial regulation bill, by a vote of 57-41. The vote will undoubtedly elicit media coverage about the politics of the votes, the partisan positioning and who could be hurt for the 2010 elections. All worthy topics, but it would sure be nice if the delays were used by journalists and the public to look more closely at what’s in the bill. We shouldn’t have to wait until after the bill is passed to identify its invitations to litigation and political abuse.

Free-market and conservative think tanks have joined a letter objecting to the financial regulation bill, S.3217, Restoring American Financial Stability Act of 2010.

John Berlau of the Competitive Enterprise Institute posts about and reprints the letter at National Review’s The Corner, “Dodd Bill: Bailouts, Taxes, and Overregulation.” This paragraph from the letter is worthy of note:

“Proxy access” and corporate governance provisions would take power from states and empower progressive interest groups — from unions to animal rights: Even though they have little justification in preventing the next financial crisis, the bill contains “proxy access” provisions that would empower union pension funds and other progressives by forcing companies to fund their Saul Alinsky-style campaigns for a company’s board of directors. Combined with other items federalizing incorporation law — like a mandated majority instead of plurality standard for director votes — this could enable special interest activists to harm the interests of ordinary shareholders and encourage corporate directors to cut deals with them on things like card check, cap-and-trade, and kicking conservative media personalities off the air.

The National Association of Manufacturers and other major business groups joined in a letter earlier this month criticizing the corporate governance provisions as well. Excerpt:
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The National Association of Manufacturers has joined a letter from a dozen major industry groups objecting to corporate government provisions proposed in financial regulation legislation. From the letter:

The undersigned organizations and institutions represent hundreds of thousands of businesses, small and large, from all sectors of the economy employing tens of millions of Americans, as well as non-profit public policy groups interested in fostering entrepreneurship and shareholder return for retail investors.

Our organizations strongly support legislative and regulatory reform that will protect investors, improve the effectiveness of financial regulators, and assist capital formation. Reform that adheres to these goals is an important response to the financial crisis and necessary to spur real economic growth. In our view, the so-called “corporate governance” provisions, Title IX, Subtitle E (sections 951 through 959) and Subtitle G (sections 971 through 974) of the “Restoring American Financial Stability Act,” do not further these objectives and, for that reason, we oppose their inclusion in financial services reform legislation.

As you know, there is no evidence that the issues addressed by these provisions were responsible for the financial crisis. Moreover, we believe that their enactment will lead to serious unforeseen (and unforeseeable) consequences that will inhibit job creation, endanger the ongoing economic recovery, and prevent the American economy from reaching its full potential.

Wall Street Journal blog, “Business Groups, Obama Administration Spar Over Corporate Governance“