“The Lilliputians look upon fraud as a greater crime than theft. For, they allege, care and vigilance, with a very common understanding, can protect a man’s goods from thieves, but honesty hath no fence against superior cunning. . . where fraud is permitted or connived at, or hath no law to punish it, the honest dealer is always undone, and the knave gets the advantage.” [Jonathan Swift - Gulliver's Travels (apt and borrowed from The Big Picture)
Brick-and-mortar bastions of public welfare and protectors of the common good, American financial institutions would like a legal shield to protect them from the consumers they "serve". They offer the following justification: "You'll offer us protection, if you know what's good for you.."
The rules are meant to help bolster the housing market. By shielding banks from potential litigation, policy makers contend that the industry will have a powerful incentive to make higher quality home loans. [Link]
Why they need the legal protection here is beyond me as we’re all but certain no executive at a US bank will ever be held legally liable for anything. It’s their country and we’re all just serfs picking at their scraps. I guess they still want it in writing, otherwise they’ll take their ball (granting credit) and go home.
At the risk of huffing and puffing over something that’s inevitable, the claim quoted above is, without qualification, one of the most absurd assertions I’ve ever run in to. We know with certainty that the banks are no stranger to moral hazard. Post-Glass Steagall, the name of the game has been volume + fees. Peripheral inputs like mortgage brokers were in on it, too. Put a golden carrot in front of a technocrat, take away the stick, and wait and see how they’ll react. Take away the consumers’ ability to seek legal action and the banks will better serve them and make better choices about creditworthiness in the face of zero-consequences fee opportunity?
There’s no net effect here. They’ve already got Congress, SCOTUS, and POTUS. Legislative protection is just icing on their cake. Why then? Just to further break the will of those holding out hope for meaningful reform?