Consumer Financial Protection Agency debate heats up

Last week, the House Financial Services Committee heard testimony from both supporters and opponents of the Obama administration’s proposed Consumer Financial Protection Agency. The proposed agency would have the power to regulate mortgages, credit cards, and other consumer financial products. According to supporters of the proposed agency, the main benefits for consumers are:

(1) concentrating federal oversight of consumer transactions into one agency, rather than the myriad of agencies currently tasked with this oversight;

(2) allowing states more power to regulate consumer financial products as they see fit, rather than allowing the usually weaker federal laws to preempt the usually stronger state protections;

(3) requiring lenders to clearly disclose the costs and risks of the products they offer, rather than the current practice of burying incomprehensible terms in paragraph after paragraph of legalese; and

(4) leveling the playing field for consumers from minority groups that have often been the target of predatory and other unfair lending practices.

Perhaps the best testimony came from Hilary O. Shelton, the NAACP’s Vice President for Advocacy:

When they have been engaged, too many regulators have spent too much time in recent years asking ‘What’s the effect on the financial firm?” without asking ‘What’s the effect on consumers?” As a result, among other problems, regulators permitted inappropriate mortgages and abusive credit card practices. And the result of these misplaced priorities, as we have seen, has been an almost complete collapse of not only our Nation’s economy, but the near ruination of the global financial system as well.

Predictably, the banking industry and its Republican allies have responded with the usual fear-mongering. Representative Spencer Bachus (R) of Alabama threatened that the proposed agency would “create more confusion for consumers…and less consumer protection.” The banking industry has also threatened that increased consumer protection will, you guessed it, raise the cost of credit for consumers.

I linked to this a while ago, but this video has the best argument for why we need the proposed consumer protection agency. If you agree with me that we need this new agency to create and enforce consumer protections with real teeth, I urge you to contact your U.S. Representative and Senators and tell them you support the Consumer Financial Protection Agency.