Elizabeth Warren makes case for Consumer Financial Protection Agency
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.”