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ABSTRACT
Dodd–Frank, the financial reform law passed in the United States in response to the 2008 financial crisis, established the Consumer Financial Protection Bureau, a new federal regulator with the sole responsibility of protecting consumers from unfair, deceptive, or abusive practices. This decision marked the end of a highly politicized reform debate in the US Congress, in which proponents of the new bureau would normally have been considered to be much weaker than its opponents. Paradoxically, an emerging civil society coalition successfully lobbied decision-makers and countered industry attempts to prevent industry capture. What explains the fact that rather weak and peripheral actors prevailed over more resourceful and dominant actors? The goal of this study is to examine and challenge questions of regulatory capture by concentrated industry interests in the reform debates in response to the credit crisis which originated in the US in 2007. The analysis suggests that for weak actors to prevail in policy conflicts over established, resource-rich opponents, they must undertake broad coalition building among themselves and with influential elite allies outside and inside of Congress who share the same policy goals.
Acknowledgements
Earlier drafts of this paper were presented at the Graduate Conference at Columbia University, New York, 6–9 July 2014 and at the Colloquium of the Max Planck Institute for the Studies of Societies, Cologne, 10 December 2014. I would like to thank all participants of these workshops. I also thank Cornelia Woll, Christine Trampusch, Jens Beckert, Martin Höpner, Olivier Godechot, Emiliano Grossman, Pepper Culpepper, Bruno Palier, Yves Surel, Kevin Young, J. Nicholas Ziegler, Robert Mayer, Elsa Massoc, and Agnes Orban for their helpful comments. Additional thanks go to the Max Planck Sciences Po Center at Sciences Po Paris, the Max Planck Institute for the Study of Societies, and the Foundation for European Progressive Studies as well as all the interview partners.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 Interview 10 with consumer advocate, Washington DC; 28 September 2013.
2 Updated versions of Dodd–Frank Progress Reports by Davis Polk are available at www.davispolk.com/Dodd-Frank-Rulemaking-Progress-Report or the website of the US Securities and Exchange Commission at www.sec.gov/spotlight/dodd-frank.shtml.
3 Interview 3a with consumer advocate, Washington, DC; 6 September 2013.
4 Interview with a banking lobbyist, Washington, DC; 16 September 2013.
5 I follow the suggestion by Beach and Pedersen that a causal mechanism is a system ‘that transmit[s] causal forces from X to Y […], assuming that the context that allows them to operate is present.’ (Beach & Pedersen, Citation2013, p. 34).
6 Interest groups can be classified as diffuse or specific, depending on the underlying interests of constituencies they represent. While diffuse interest groups represent a broad, collective interest (such as consumers), specific interest groups represent a narrow self-interest (such as industry groups) (Beyers, Citation2004, p. 216). Following Trumbull (Citation2012, p. 10), consumer groups are here understood as diffuse interests that pursue pragmatic policy outcomes in their collective material interest (as opposed to concentrated interests).
7 Dodd–Frank, § 1021(a).
8 Interview with representative of consumer association, Washington, DC; 5 August 2011.
9 While regulatory capture theory was initially designed to explain the behaviour of regulatory agencies, not legislative decisions, the concept has since been applied more broadly to financial regulatory decision-making.
10 Interview with banking lobbyist, Washington, DC; 25 February 2014.
11 Interview with banking lobbyist, Washington, DC; 20 September 2013.
12 Statement of Sheila C. Bair, on Modernizing Bank Supervision and Regulation before the US Senate Committee on Banking, Housing, and Urban Affairs, 19 March Citation2009.
13 Interview with consumer advocate, Washington, DC; 12 September 2013.
14 Interview with consumer advocate, Washington, DC; 13 September 2013
15 Interview with consumer advocate, Washington, DC; 12 September 2013.
16 The website is available at http://www.responsiblelending.org/about-us/contact-us/share-story.html.
17 Interview with Congressional staffer, Washington, DC; 7 March 2014.
18 Interview with consumer advocate, Washington, DC; 13 February 2014.
19 Interview with government official, Washington, DC; 10 March 2014.
20 Interview with government official, Washington, DC; 10 March 2014.
21 Interview with Congressional staffer, Washington, DC; 24 March 2014.
22 Interview with Congressional staffer, Washington, DC; 24 March 2014
23 Interview with Congressional staffer, Washington, DC; 7 March 2014 and interview 65b with consumer advocate, Washington, DC; 13 February 2014.
24 Interview with consumer advocate, Washington, DC; 13 February 2014.
25 Interview with consumer advocate, Washington, DC; 28 September 2013.
26 Interview with Congressional staffer, Washington, DC; 17 March 2014.