In Support of the Consumer Financial Protetction Agency
October 8, 2009
Imagine a widespread E. coli outbreak that sickens millions of Americans. By the next year, the government determines that lax oversight exacerbated the problem and calls for restructured FDA regulations to protect consumers from tainted products.
In response, the industry cries foul. “These regulations will limit our innovations,” howl the food lobbyists. “Our customers deserve greater freedom of choice.”
Or, imagine an alternative scenario. Children’s toys contaminated with lead paint have been found on store shelves, so the Consumer Product Safety Commission responds with regulations to protect children from dangerous toys.
“No fair,” cry toy-company lobbyists. “Low-income consumers can only afford the lead toys. Why should the government punish low-income families by regulating toys?”
The above scenarios are fiction, of course, but the story arc is actually all too current.
Over the summer, the Obama administration, responding to the well-known financial abuses that helped cause and exacerbate last year’s financial collapse, proposed a new Consumer Financial Protection Agency (CFPA) – a financial parallel to the agencies that protect consumers from harmful food products or retail goods.
Since then, much of the opposition from the banking industry has taken the form of variations on the above. Led by a $2 million push from the US Chamber of Commerce, the bank lobby is aggressively defending the status quo, working to convince lawmakers that the CFPA would be bad for consumer-choice and for low-income borrowers.
Their spin has already bubbled up to the House Financial Services committee, which is currently considering legislation to establish the CFPA. In a committee hearing in late September, Rep. Spencer Bachus, (R – AL) criticized the CFPA asking, “Is the proper role of government to limit consumer choice?” and Rep. Shelly Moore Capito (R – WV) expressed concern that in the future loans “would only be eligible to higher income borrowers.”
Neither concern has merit. The only product limitations under the new agency’s oversight would be limits on financial products offering misleading, confusing, predatory, or harmful terms. And the hundreds of successful community banks and credit unions across the country that specialize in making affordable loans to low-income communities prove that financial institutions can play by the rules and thrive, without restricting credit to upper income levels. (Canada has had a similar Financial Consumer Agency in place since 2001 without ill effects on consumers or the economy.)
Harvard law professor Elizabeth Warren, who has called for a CFPA for years, uses a typical credit card agreement to illustrate why a consumer protection agency is so necessary: “Citibank’s credit card agreement was … a page and a half long in 1980. … Now that same agreement is 30 pages long. What they’ve really brought us is the kind of innovation [that asks] how many ways can I fool people about the new products? … They’re raking in tens of billions of dollars off it.”
In reality, the clearest problem with the model of the CFPA currently under consideration in the House is that it doesn’t go far enough. Millions of consumers got burned in the mortgage collapse, and millions more struggle with credit card debt. Yet House leaders have already pared back the proposal as presented by Obama in June, pruning out features such as the requirement that financial institutions provide a “plain vanilla” version of the financial products they provide (standard 30-year mortgages, for example, or easy-to-read credit-card forms).
No one agency yet advocates with the consumer in mind when monitoring financial products, even though predatory lending can ruin lives just as certainly as any other harmful consumer product. Last year’s collapse should have made it perfectly clear – the time for a far-reaching CFPA has come.