Maryland’s Financial Regulator Should Not, directly or indirectly, Give Industry a Seat at the Table While Consumers Remain Outside the Room

Maryland consumers should be asking a simple question: When the state’s financial regulators develops a policy affecting mortgages, debt collection, consumer lending, and other financial services, who gets a seat at the table?  Last week the Conference of State Bank Supervisors (CSBS), recently chaired by Anthony Salazar, announced the formation of “the Nonbank Industry Advisory Council (NIAC), a forum designed to foster dialogue among industry experts and state supervisors.”  But there is an obvious problem with a regulatory forum designed to influence public policy: consumers apparently have no seat at the table.

That imbalance should concern Maryland policymakers. Representative Jamie Raskin has aptly criticized federal policies that are “all about elevating the largest corporations…over the public interest.” So, at a time when any reasonable, fair regulation in financial services is under attack, states should be working to fill the gap to protect consumers and their residents from unfair or deceptive conduct.  But when states instead cozy up to the interests of the corporations they are supposed to supervise, the public should be concerned about the appearance of bias or favoritism. 

CSBS has appointed dozens of state regulators and industry representatives to serve on the NIAC. Included among the NIAC appointments are also seven different “Observers” who each come from the law firms which regularly represent the financial service industry in litigation when the states and federal regulators chose a path of non-enforcement of unfair and deceptive practices laws. 

Not one member of the new NIAC or even its designated “Observers” represents the interests of consumers that government regulations are designed to protect in the areas of debt collection, consumer finance, mortgage lending or servicing, or money transmitters (i.e. check cashing, payment processing, etc.).  Industry expertise may be valuable. The problem is not that regulators listen to industry. The problem is that a formal channel for industry influence over regulatory policy, without comparable consumer participation, creates an inherently unbalanced policymaking process and the appearance that regulated entities may obtain favors behind closed doors.

Why should Maryland consumers and policy makers be concerned about the industry-stacked NIAC created by the CSBS?

Under Maryland law, its Office of Financial Regulation is authorized to “enter into information-sharing agreements with other governmental agencies…[and] the Conference of State Bank Supervisors.”  See e.g. Fin. Inst. § 12-408.1(b); Fin. Inst. § 11-620(b).  And subject to certain limitations, the information shared by the agency with CSBS may remain private and confidential and hidden from the public’s view.  Fin. Inst. § 12-408.1(a); Fin. Inst. § 11-620(a). 

Marylanders deserve answers to several questions:

  • Will the Office of Financial Regulation participate in NIAC discussions?
  • What information will it share?
  • Will Maryland consumers know what policy recommendations industry representatives make through NIAC?
  • And, most importantly, what comparable mechanism exists for consumers and independent consumer advocates to provide input before policy decisions are made in a transparent forum?

Nearly a decade ago in N. Carolina State Bd. of Dental Examiners v. F.T.C., 574 U.S. 494 (2015), the Supreme Court identified the broader institutional danger presented when active market participants become entwined with governmental decision-making. The concern, the Court explained, does not depend upon questioning the “good faith of state officers.” It arises from the “structural risk” that market participants may confuse “their own interests with the State’s policy goals.”  Id. at 510. 

Maryland’s own recent experience demonstrates why that structural risk should not be dismissed as theoretical.

With all the chaos at the federal level related to regulation of the financial service sector, states should be stepping up to filling the voids created with transparency and without favor to the industries they are required to regulate for the public’s protection.  Maryland’s policy leaders should therefore ensure that Maryland’s chief regulator remains transparent and without favor to the industry it regulates.  Maryland’s governance should not be “about elevating the largest corporations…over the public interest…” 

For example, in 2022, Maryland’s Office of Financial Regulation had an Administration Bill introduced in the Maryland General Assembly (i.e. SB 217) which addressed junk fees charged by regulated lenders while expressly noting in its written testimony the existence of pending “lawsuits against lenders” involving those fees. Whatever one thinks of the merits of that legislation, the episode demonstrates why transparency and meaningful consumer participation matter when regulators promote policy changes to favor their regulated entities being sued for conduct which violates the law the agency refused to enforce.

What Maryland General Assembly Should Do…

Maryland policymakers should insist on four basic safeguards before Maryland’s Office of Financial Regulation participates in or relies upon NIAC:

  • Transparency about Maryland’s participation;
  • Disclosure of the policy recommendations and information industry representatives provide;
  • Meaningful, institutionalized participation by independent consumer representatives; and
  • Public reporting on how Maryland’s Office of Financial Regulation uses recommendations received through NIAC.

Regulators should hear from the businesses they regulate. Industry expertise matters. But industry cannot be the only voice in the room. If Maryland intends to fill the consumer-protection void being created in Washington, its financial regulator must remain demonstrably independent of the entities it supervises—and consumers must have a meaningful seat at the table.  James Madison famously observed in Federalist No. 51 that “[i]f men were angels, no government would be necessary.” Regulators need checks too. When regulators create a formal channel through which regulated industries can help shape public policy, transparency and a countervailing consumer voice are not obstacles to good regulation. They are essential to it.