The Times, Trenton

'Safety And Soundness' For Financial Services Consumers

The Times of Trenton — Monday, August 24, 2009

Op-Ed

BY PHYLLIS SALOWE-KAYE

Your bank, which may have benefited from a large taxpayer-funded bailout this year, is now working to keep you from getting the consumer financial protections you need and deserve. They are the consumer protections that might have kept our economy from going off a cliff by preventing unsound and abusive mortgages.

The Consumer Financial Protection Agency Act is pending in Congress. This legislation would streamline financial consumer protection that is currently fractured among seven federal agencies and some 20 laws into one office, the Consumer Financial Protection Agency (CFPA). The CFPA's sole mission would be to protect consumers by preventing discriminatory, deceptive or fraudulent loans; ensuring products are fair and suitable to the buyer; and providing transparent, uniform enforcement. The agency would focus on the safety of credit products, features and practices, no matter what kind of lender offers them. The reckless lending that brought our economy down would have been stopped early on had this agency been in existence. New Jersey Citizen Action (NJCA) supports the proposed legislation.

The banks are out in force telling our elected representatives that they oppose the bill. But their arguments are inaccurate and disingenuous.

The banks are saying that the proposed relationship between state and federal regulation will make compliance costly and complex. Under the proposed bill, federal rules will be the floor of consumer protection. States will be allowed to enact additional protections as conditions warrant. What the banks don't seem to want to understand is that state laws and enforcement can actually reduce overall costs to industry and the economy. It was the banks that succeeded in their lobbying effort to get the federal regulators to stop enforcement of stricter state predatory lending laws. The residents of those states would be much better off today had the banks failed in their lobbying effort.

Truth is, most states that enact laws in areas where Congress has not acted tend to pass provisions that are often very similar, so when banks argue the CFPA will create a "patchwork" of state laws, it's a red herring. And it's even more of a red herring when we consider that the federal rules should be at a level where the vast majority of states won't need to pass additional legislation. In addition, problems reach the radar screen of the states much sooner than they reach the federal level. Structuring the bill with state flexibility allows states to put an end to unsavory practices before they can even reach the national level, thus protecting all of us.

Opponents of the bill also say that the role of regulators in ensuring bank "safety and soundness" cannot be separated from the role of protecting consumers. It's understandable that the banks would say this — they are happy with the status quo. They received enormous taxpayer-funded bailouts and now are giving out bonuses to their top employees. In their view, why change anything? But what they are really saying is that consumers, who already bailed them out, should continue to pay outrageous fees and be subject to abusive practices, in the name of "safety and soundness" for themselves. Consumers deserve "safety and soundness," too — and the Consumer Financial Protection Agency will provide that.

Finally, the bankers are saying this agency creates another layer of bureaucracy that we don't need. But it's not another layer of bureaucracy. This agency will actually consolidate consumer protection efforts and put them all in one place, thus streamlining these protections, not creating a new bureaucracy. The bill even moves consumer protection staffers from other federal agencies into the CFPA, so the employees will be working in one place. Putting the consumer protection staff and functions into one agency will reduce the burden on banks, not increase it.

It's easy for the banks to say they don't need or want this agency; they have the regulators looking out for them every day. But what about the consumers? Wouldn't it be fair if we had someone looking out for us as well? The Consumer Financial Protection Agency will do that, and folks who oppose it obviously just want to keep the status quo — ensuring that consumers and taxpayers pay while the banks dole out their big bonuses and continue with their abusive practices.

The NJCA has joined Americans for Financial Reform, a national coalition of more than 200 national, state and local consumer, employee, investor, community and civil rights organizations spearheading a campaign for real reform in our banking and financial system. We urge our congressmen and senators to support the president's proposal for the creation of a Consumer Financial Protection Agency. The time for the Consumer Financial Protection Agency is now.

Phyllis Salowe-Kaye is executive director of New Jersey Citizen Action.

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