Consumer Financial Protection Agency debate heats up
October 5, 2009 by Todd Murray · Leave a Comment
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.
Elizabeth Warren makes case for Consumer Financial Protection Agency
July 20, 2009 by Todd Murray · Leave a Comment
In a recent op-ed piece in BusinessWeek, Harvard professor Elizabeth Warren makes a strong case for the President’s proposed Consumer Financial Protection Agency. She argues that
[t]his information gap between lender and borrower exists throughout the consumer credit market. The average credit-card contract is dizzying—and 30 pages long, up from a page and a half in the early 1980s. Lenders advertise a single interest rate on the front of their direct-mail envelopes, burying costly details deep in the document. Faced with legalese and obfuscation, consumers can’t really compare offers or make clear-eyed choices about borrowing at all.
She goes on to point out that
[i]n short, the consumer credit market is broken. Real competition, the kind that permits informed choices and allows the best products to rise to the top, has disappeared. And as we know all too well, a broken credit market doesn’t hurt just consumers. Reckless lending and borrowing has jeopardized the soundness of some of our biggest banks and caused a severe economic downturn. The agency proposed by the President would promote clear disclosure of the risks and costs for everything from mortgages and credit cards to payday loans and bank overdraft fees. It would also regulate financial products by type—home loans, say—regardless of what kind of lender issued them. The change would stitch up the hole in the current system that permits credit-card issuers to pick their regulators and lets nonbank mortgage companies grant loans with no effective oversight.
Professor Warren also issued the following YouTube video making her case:
As Professor Warren points out in the video, the banking and finance industry is already setting aside huge sums of money and interviewing public relations firms to fight the proposed agency. Predictably, the industry has taken a chicken-little approach and argued that the new agency threatens our financial system. But as Ed Mierzwinski points out in his recent post on the U.S. PIRG Consumer Blog, “[w]ait, [the financial industry] already destroyed that. Actually, it threatens their campaign-cash driven hegemony over our financial system that helped lead to the collapse.”
Obama’s proposed consumer protection agency will have power to ban forced arbitration
July 1, 2009 by Todd Murray · Leave a Comment
I’ve written in the past about how forced arbitration is bad for consumers in the context of debt collection. Virtually all consumer credit contracts give the debt collector the power to choose the arbitration forum. Predictably, debt collectors choose forums that rule in their favor the overwhelming majority of the time. In addition, a private arbitrator is not accountable to the public like a judge, is not required to explain his decision, and his decision cannot be appealed in a meaningful way.
But the Obama administration has taken a huge step in reforming this unfair system. The President has proposed the creation of a new agency to serve as a watch-dog for consumers. Under the current proposal, the Consumer Financial Protection Agency could prohibit forced arbitration if such a prohibition is in the public interest or would protect consumers. Obviously the proposed agency is a long way from being finalized, and the proposal is sure to face stiff opposition from the financial industry. But if the proposal is enacted in its current form, it will have the potential to put an end to the unfair way that debt collectors are currently using arbitration against consumers.
If you live in Minnesota and are facing an arbitration proceeding, feel free to contact me.
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