Presidential Address On Consumer Financial Protection Agency

Here's a link to the President's address on the Consumer Financial Protection Agency.


An excerpt:

"I welcome a debate about how we can make sure our regulations work for businesses and consumers. But what I will not accept – what I will vigorously oppose – are those who do not argue in good faith. Those who would defend the status quo at any cost. Those who put their narrow interests ahead of the interests of ordinary Americans. We’ve already begun to see special interests mobilizing against change. "

Who are the special interests that he refers to? U.S. PIRG's Consumer Blog names some names.

Is it time to be optimistic yet?

It's official, the Administration's Financial Regulatory Reform plan includes what consumer advocates have been referring to as a Financial Product Safety Commission.
It's the third point in the official plan available at this Treasury Website for the Regulatory Reform initiative or at financialstability.gov, and they're calling it a "Consumer Financial Protection Agency." Obama has been using Warren's exploding toaster/mortgage analogy (they can both cause you to lose your house!), so I wonder why the plan wouldn't adopt her corresponding Consumer Product Safety Commission/Financial Product Safety Commission analogy.

Anyway, the name is less important than the details of what this agency will do. That includes setting baseline standards for consumer financial products, such as verification of a borrower's ability to pay, banning methods of broker compensation that create an incentive to rip people off, and requiring that borrowers who qualify for prime products "opt out" before they are sold an "alternative" product. Most notably, the consumer protection standards set by the agency will be a floor, not a ceiling. That means that those states which go further to protect consumers won't be preempted by federal law.


Obviously, the banking industry is opposed to this. I have heard the Financial Services Roundtable and the American Bankers Association on NPR over the last couple of days saying that we don't need a new agency to protect consumers because lenders have an incentive to act in the consumers interest in order to protect the institution's reputation, and that imposing any standards on financial products will "stifle innovation." These arguments show that either: (1) the financial services industry has a very short memory, or (2) they are hoping Congress does.

Turning back to the plan- it gets even better! The OCC and OTS would be eliminated, so that banks won't be able to shop around for the regulator who will treat them the most favorably and aggressively shield them from the enforcement of state law.

It's a beautiful thing.

Financial Product Safety Commission

We regulate all other consumer products to protect consumer safety- toasters, cars, food and drugs. Why not financial products? A negatively amortizing exploding option ARM with a prepayment penalty can do as much damage to you and your family as an exploding toaster, if not more. The great idea for a Financial Product Safety Commission- championed by Harvard Law Professor (and head of the Congressional Oversight Panel for the bailout money) Elizabeth Warren- looks like it is starting to gain some ground! Check out the Washington Post article here.

Ex-employees of Wells Fargo come clean

For years, consumer advocates have been bringing attention to the problem of "reverse redlining"- the practice of steering people of color towards high-cost subprime loans when they qualify for more traditional or more affordable loan products.

The City of Baltimore's fair lending lawsuit against Wells Fargo has produced some interesting affidavits from former employees of Wells Fargo. The former employees talk about the tactics used to encourage people of color to choose subprime or no-documentation loan products; the practice of loan officers falsifying loan applications to put borrowers into certain products; the practice of targeting borrowers through Black churches, and outright use of racial slurs around the office.

Read about it at the New York Times, Baltimore Sun, or Public Citizen's Consumer Law and Policy blog.

It is worth noting that state attorneys general may have been able to investigate and uncover lending discrimination by Wells Fargo if not for the Office of the Comptroller of Currency's aggressive assertion of preemption (the OCC opposes any state attempt to investigate the books of a national bank or its operating subsidiary.)