“The Case For A Consumer Protection Agency”
October 09, 2009, 1:00am

The Progress Report.

At the White House today, President Obama will “appeal to voters for help in moving forward his proposal to create a new agency to oversee consumer financial products.” The new agency — known as the Consumer Financial Protection Agency (CFPA) — is a key part of the administration’s plan for overhauling the nation’s financial regulatory system. “Opponents have attempted to discredit the importance of the Consumer Financial Protection Agency to the millions of Americans who have borne the brunt of the near collapse of the financial industry,” an administration official said. The agency would have oversight over financial products such as mortgages, credit cards, and small-dollar loans (such as payday loans) — inclusive of loans from non-bank lenders — in an effort to rein in the predatory practices that contributed to the subprime bubble and buried American families under a mountain of debt. The agency would also be able to prevent banks from charging exorbitant fees without disclosure. As Sen. Chris Dodd (D-CT) said, “Banks should make their profits off of their investments, not by abusing customers struggling with the economic recession.” The plan has ignited a firestorm of lobbying by the financial services community, which claims the agency will be “bad for the consumers” and “needlessly rips apart all the existing regulatory agencies.” The Chamber of Commerce, meanwhile, has launched a $2 million ad campaign against the agency, calling it an “overly broad, overly sweeping, big government solution.” But the agency is a vitally important part of crafting a regulatory system that doesn’t allow big banks to take advantage of consumers — and destroy the economy in the process.

CONSUMERS A ‘TERTIARY CONCERN’: Currently, a slew of banking regulators — including the Federal Reserve, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision — are responsible for both consumer protection and ensuring that the banks are in good financial shape. However, in the buildup to the financial crisis, regulators focused on the banks, leaving consumer protection, as Rep. Barney Frank (D-MA) put it, a “secondary at best and probably tertiary concern.” The Fed was actually granted authority to police predatory lending in 1994, yet failed to act on it. And unfortunately, banks reaped record profits on predatory products, such as high-priced subprime loans or credit cards with exorbitant fees. As The American Prospect’s Tim Fernholz wrote, these products “were premised on the idea that they were risky and consumers didn’t understand them, since that was a better way for banks to make money.” The CFPA bill would strip the existing bank regulators of their consumer protection responsibilities and place them all within the new agency, and CFPA regulators would be empowered to ban predatory products and take enforcement actions against financial institutions. Harvard Law Professor Elizabeth Warren said the agency “will bring complex and sometimes contradictory consumer regulations under one roof and transform them into a coherent set of smarter rules. The CFPA would put someone in Washington — someone with real power — who cares about consumers.”

BANKS AGAIN BEHAVING BADLY: It’s essential that the CFPA have adequate resources and enforcement abilities because, as the financial sector has regained strength and large banks have been paying back their government funds, new financial products that could harm consumers have quickly come back onto the market. McClatchy reported that “an influx of shady loan professionals” have ramped up the sale of reverse mortgages, which the National Consumer Law Center calls “subprime revisited.” Many subprime brokers have also returned as “dubious loan fixers,” according to the New York Times, promising mortgage modifications for outrageous fees. Many mortgage lenders, meanwhile, have reintroduced a plethora of “junk fees,” earning record profits despite the current housing slump. “I see a lot of junk fees,” says Realtor Rose L. Harris. “Even for people who have really good credit and qualified down payments…they are being charged a lot of extra fees.” Big banks such as Bank of America, Citigroup, and JPMorgan Chase have also rolled out “newfangled corporate credit lines tied to complicated and volatile derivatives,” while Wells Fargo and U.S. Bancorp are expanding their payday loan businesses and “using their national bank charters to avoid state usury laws.”

RESTRICTING CREDIT?: The banks’ main argument against the new agency is that it will limit access to financial products, and thus restrict credit. The Chamber of Commerce even goes so far as to state that the CFPA credit crunch “would cost a significant number of jobs that would either be lost or not created.” However, Canada created a consumer protection agency in 2001, and even financial services lobbyists there admit that the agency has not hurt bank lending. “I certainly have not seen anything that shows that we are vastly different from the United States in terms of access to credit,” said John Rossi, who heads compliance and enforcement efforts for the Financial Consumer Agency of Canada. Republicans, meanwhile, charge that the agency will literally choose which products individual families are allowed to have. “An unelected bureaucrat will now decide for us what mortgages we can have,” said Rep. Jeb Hensarling (R-TX). “They will decide what bank accounts we can open. They may even decide whether or not we can be trusted with a credit card.” However, the agency will merely mandate that financial firms provide clear disclosures and forms, and Frank has already scaled back a provision requiring firms to offer consumers a simple “plain vanilla” product before moving on to more complicated and expensive products. As Connecticut Attorney General Richard Blumenthal said, “the point is to assure that consumers fully understand the financial realities and consequences of financial obligations, credit cards or loans, they are considering before they make commitments. … Once they use that information and make decisions, they will have to live with the consequences.”

RADICAL RIGHT — COBURN WANTS TO DROP POLITICAL SCIENCE FUNDING SINCE AMERICANS CAN JUST TURN TO CABLE NEWS: On Wednesday, Sen. Tom Coburn (R-OK) introduced an amendment to bar the National Science Foundation (NSF) from “wasting federal research funding on political science.” Coburn’s amendment argues that the universities receiving much of the funding “may have some interesting theories about recent elections, but Americans who have an interest in electoral politics can turn to CNN, FOX News, MSNBC, the print media, and a seemingly endless number of political commentators on the internet,” for answers to their questions. Some of Coburn’s criticisms appear to be politically motivated. As Crooked Timber points out, one of Coburn’s chief examples of “waste” was the research of “liberal” New York Times columnist and Nobel laureate Paul Krugman. Krugman responded to Coburn’s accusation by pointing out that the funding was for work on international trade that led him to receiving the Clark Medal and the Nobel Prize in economics. Robert Lowry, a professor of political science at the University of Texas at Dallas, further explained the difference between the social science and the punditry: “CNN has a lot of smart people, but at best it’s all a very short-term cycle. They chew over the results from last night’s election, and by the next week they’re on to something else.” The American Political Science Association is now asking people to contact senators to show support for their social science.

The House voted yesterday “to expand the definition of violent federal hate crimes to those committed because of a victim’s sexual orientation, a step that would extend new protection to lesbian, gay and transgender people.” Although the military bill that has the provision attached to it has yet to be approved by the Senate, it has solid support.
Gen. Stanley McChrystal’s troop increase request for Afghanistan that was recently sent to President Obama contains three different options, “with the largest alternative including a request for more than 60,000 troops.” However, an additional 40,000 soldiers “remains the primary choice of senior military brass, including Gen. McChrystal.”
The Obama administration has “concluded that the Taliban cannot be eliminated as a political or military movement, regardless of how many combat forces are sent into battle.” Instead, U.S. efforts will aim to “weaken the Taliban to the degree that it cannot challenge the Afghan government or reestablish the haven it provided for al-Qaeda before the 2001 U.S. invasion.”
“Congress is moving to require videotaping of interrogations of detainees held by the military, a step proponents say will prevent abuse and create a valuable intelligence record.” The provision, which passed the House yesterday, “would apply to interrogations of anyone held at a Defense Department facility,” but “would not apply to battlefield interrogations by troops engaged in combat.”
The Senate Judiciary Committee yesterday approved legislation that would reauthorize three sections of the Patriot Act. One senator who voted against the legislation, Sen. Russ Feingold (D-WI), said it was the job of the Judiciary Committee to find the right “balance” between civil liberties and national security.

The House Ethics Committee voted unanimously yesterday to “expand the investigation into Rep. Charles Rangel’s (D-N.Y.) alleged financial irregularities. The panel broadened the jurisdiction of its probe to include amendments he made in August to his financial disclosure records showing at least $600,000 in previously unreported assets.”
According to the Urban Institute and the Robert Wood Johnson Foundation, the Senate HELP Committee’s health care bill would charge Americans aged 55 to 64 fifty percent less for health insurance compared to the Senate Finance Committee’s bill. The HELP Committee’s bill would charge those older Americans $5,930 on average compared to $8,650 under legislation in the Finance Committee.
The Congressional Oversight Panel, a watchdog set up to oversee the taxpayer bailout, has said that the Obama administration’s efforts to force the modifications of distressed mortgages under the Home Affordable Modification Program, “while laudable, is likely to fall far short because the foreclosure crisis has grown and threatens to dwarf government efforts to relieve it.”
The Department of the Interior has blocked oil drilling at 60 of 77 contested sites in Utah, claiming that the leasing of the land was rushed and badly handled. Eight of the requested sites will be withdrawn, and 52 of them will be further studied by the Department.
And finally: Royal Barber, a candidate for Sylvania Township trustee in Ohio, is attracting attention for his election-themed Halloween decorations: He has painted the names of his rivals on tombstones in his front yard. “I thought I’d do something different, something funny this year,” said Barber. One rival, Kevin Eff, found it “just distasteful,” and asked Barber to remove his name. Barber complied, “replacing it with an asterisk” as “an allusion to cartoonist Garry Trudeau’s convention of using an asterisk to represent both Presidents Bush in his Doonesbury comic strip.”