As the financial reform bill moves onto the Senate floor, one of the central battles will be fought over the Consumer Financial Protection Agency. Consumer protection is an area of fundamental disagreement between Democrats and Republicans.
With derivatives regulation, the two sides will agree on broad principles and the action will be over arcane exemptions and definitions. With consumer protection, the two sides fundamentally disagree over whether the new agency should exist or have any power. It is also the section of the bill most likely to inspire popular interest, with one side calling for protection of ordinary people from ruthless banks and predatory lenders, and the other decrying the creation of a new bureaucracy.
We have been and remain advocates of a strong, independent CFPA for familiar reasons: the increasing use of product complexity as a way to hide fees; the vastly unequal bargaining power between consumers and the oligopolies that dominate many financial products; the need for uniform standards that apply to non-bank institutions as well as traditional banks; and the abject failure of existing regulators to enforce those laws that did exist.
Opponents such as Alan Greenspan have argued that a lack of consumer protection did not cause the recent financial crisis, and that therefore new regulations are not necessary. This is at best half-true and misleading. First, Greenspan's argument that not the "origination of subprime mortgages"? but "demand for securitized subprime mortgage interests"? lay behind the financial crisis is high-class sophistry. Tighter regulation of mortgage lending would have restricted the supply of the raw material that Wall Street needed for the securitization pipeline.
It is true that a bubble can be based on many different types of assets, not just consumer loans. But even if the crisis would have been possible without predatory lending, stronger consumer protection limits one source of bubbles "? and is good in and of itself. Would Greenspan say that taking advantage of customers is fine so long as it does not threaten the financial system?
Given the political appeal of stronger consumer protection, it may be difficult for opponents to take a strong line against a new agency (although the Chamber of Commerce has done its best). So opposition will most likely focus on weakening consumer protection behind the scenes.
One attack will likely be an attempt to subject the CFPA to "adult supervision."? Section 1023 of the current bill, "Review of Bureau Regulations,"? already allows the Financial Stability Oversight Council, a committee of regulators, to override any CFPA regulation it finds would endanger "the safety and soundness of the United States banking system or the stability of the financial sector."?
This is a curious provision. As Raj Date has pointed out, it's not clear what problem this is meant to solve, since "there is no empirical evidence that the over-protection of consumers ever has created systemic risks,"? and there's no precedent for giving heads of regulatory agencies veto power over the actions of a different agency.
It also allows a group of regulators who have historically been far from consumer-friendly to veto the decisions of the CFPA. As currently drafted, this section makes it relatively difficult for the FSOC to override the CFPA. However, opponents of consumer protection will probably attempt to widen the scope of this veto in order to make the CFPA subservient to traditional regulators.
Another threat involves federal preemption of state law. Preemption means that if a state attempts to set a higher regulatory standard than the federal government, the federal standard prevails. During the housing boom, federal banking regulators chose to preempt state laws against predatory lending that might have reined in subprime lending, replacing them with lax or nonexistent federal standards.
The Obama administration proposed to end federal preemption and allow states to set their own consumer protection standards. However, as described by Stacy Mitchell, author of Big-Box Swindle and a senior researcher with the New Rules Project and its Community Banking Initiative, financial sector lobbyists are hoping to cut a deal that restores federal preemption. Expanding preemption could effectively allow the Office of the Comptroller of the Currency to undermine the intentions of the CFPA.
Our economy needs a financial system that serves its customers, not one that sees them as marks to be taken advantage of. This should be one pillar of reform that everyone can agree on. But since everyone can't agree, supporters will have to be vigilant against attempts to cripple the agency in its infancy.
Johnson and Kwak are co-authors of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, and of the economics blog BaselineScenario.com.
Source: http://thehill.com/opinion/op-ed/91745-the-us-economy-needs-strong-independent-cfpa The contents of this site are © 2010 Capitol Hill Publishing Corp., a subsisiary of News Communications, Inc. Add CommentName (required)
E-Mail (will not be published) (required)
Your Comments
Submit CommentClear The Hill Archives: Senate | House | Administration | Campaign | Business & Lobbying | Capital Living | Opinion View News by Subject: Defense & Homeland Security | Energy & Environment | Healthcare | Finance & Economy | Technology | Foreign Policy | Labor | Transportation & Infrastructure GO TO THE HILL HOME » Most Popular Stories Most ViewedSenate Dems to push unemployment extension, eye yearlong fix soonBoehner: Repealing healthcare law Republicans' 'No. 1 priority' in 2010Obama at new low in Gallup pollBattle-weary House Dems eye short weeks, easy votes ahead of electionJCT: Healthcare law to sock middle class with a $3.9 billion tax increase in 2019 EmailedHillary for the courtSenate Dems to push unemployment extension, eye yearlong fix soonBattle-weary House Dems eye short weeks, easy votes ahead of electionJCT: Healthcare law to sock middle class with a $3.9 billion tax increase in 2019 McCain attacks Hayworth on gay, birther stancesDiscussedSenate Dems to push unemployment extension, eye yearlong fix soonBoehner: Repealing healthcare law Republicans' 'No. 1 priority' in 2010Obama at new low in Gallup pollJCT: Healthcare law to sock middle class with a $3.9 billion tax increase in 2019 Crunch time for climate change bill Home/News » Most Viewed RSS Feed » More Op-Ed Headlines The dash to Memorial DayEnvisioning a world without nuclear weaponsA new energy future in the Americas More Op-Ed Headlines » Op-Ed News RSS feed » Briefing Room Leahy: 'No interest' in SCOTUSBurris: Obama should name black SCOTUS nomineeCornyn: Openly gay SCOTUS nominee might be acceptable More Briefing Room » Congress Blog Value-added tax wrong medicine for ailing economy (Rep. Leonard Lance)The Big Question: Is the push for a climate change bill dead?Wrongful Fatalities, Failed Worker Protections More Congress Blog » Pundits Blog Scott Brown's tough row to hoeSecrets of the Catholic ChurchVeterans Affairs Open Government Initiative More Pundits Blog » Twitter Room Columbia Journalism Review tweets all Pulitzer winnersTOP TWEETSCongressman uses Twitter to give Census advice More Twitter Room » Hillicon Valley Sens. Kerry, Gillibrand seeking new 'ambassador-at-large' for cybersecurityMonday tech roundup: NAB takes on FCCBroadcasters lash out over FCC plan to reallocate TV spectrum More Hillicon Valley » E2-Wire Reid 'pushing very hard' for climate billRockefeller requests mine safety hearingStudy finds big potential energy savings in South More E2-Wire » Ballot Box Corporate taxes become an issue in Pennsylvania's special electionGingrich still bucking GOP base with endorsementsMcCain attacks Hayworth on gay, birther stances More Ballot Box » On The Money Poll: Support growing for consumer protection agencySenate panel releases report blasting WaMu's mortgage practicesSenate votes to move forward on jobless benefits with four Republican votes More On The Money » Blogs News Feed You need Flash Player 8 (or higher) and JavaScript enabled to view this content var config = new Array(); // Edit these parameters to configure your Brightcove Badge config["divId"] = "flashcontent"; config["playerId"] = 28096213001; //the player's id config["lineupId"] = null; //lineup id (optional, if not used enter null) config["columns"] = 2; //number of columns config["rows"] = 1; //number of rows config["bgcolor"] = "#FFFFFF"; //movie background color config["openInNewWindow"] = "true"; //open player in a new window createbadge(config); COLUMNISTS Markos Moulitsas GOP's health law conflict Dick Morris GOP will win House-Senate Ben Goddard Millennials: Yes they can Cheri Jacobus Pelosi sends chill More Columnists »Get latest news from The Hill direct to your inbox, RSS reader and mobile devices.
function proc_w_cb(elm) { var button = $(elm); var div = button.getParent(); var email = div.getChildren('input').filterByClass('email'); var email_value = email.getProperty('value'); var myXHR = new XHR({ method: 'get', onSuccess: function(response) { alert(response); }, onFailure: function() { alert('Error'); } }).send('/newsalert_saver/newsalert.saver.php', 'task=ajax_add_email&email='+email_value); }; Home/NewsNews by SubjectBlogsBusiness & LobbyingOpinionCapital LivingSpecial ReportsJobsThe Washington Scene Home | Privacy Policy | Terms & Conditions | Contact | Advertise | RSS | SubscriptionsThe Hill 1625 K Street, NW Suite 900 Washington DC 20006 | 202-628-8500 tel | 202-628-8503 fax
The contents of this site are © 2010 Capitol Hill Publishing Corp., a subsidiary of News Communications, Inc.
_qoptions={ qacct:"p-51dZx4IkAE4Zk" }; var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www."); document.write(unescape("%3Cscript src='" + gaJsHost + "google-analytics.com/ga.js' type='text/javascript'%3E%3C/script%3E")); try { var pageTracker = _gat._getTracker("UA-10188146-1"); pageTracker._trackPageview(); } catch(err) {} var _sf_async_config={uid:3100,domain:"thehill.com"}; (function(){ function loadChartbeat() { window._sf_endpt=(new Date()).getTime(); var e = document.createElement('script'); e.setAttribute('language', 'javascript'); e.setAttribute('type', 'text/javascript'); e.setAttribute('src', (("https:" == document.location.protocol) ? "https://s3.amazonaws.com/" : "http://") + "static.chartbeat.com/js/chartbeat.js"); document.body.appendChild(e); } var oldonload = window.onload; window.onload = (typeof window.onload != 'function') ? loadChartbeat : function() { oldonload(); loadChartbeat(); }; })();Opponents such as Alan Greenspan have argued that a lack of consumer protection did not cause the recent financial crisis, and that therefore new regulations are not necessary. This is at best half-true and misleading. First, Greenspan's argument that not the "origination of subprime mortgages"? but "demand for securitized subprime mortgage interests"? lay behind the financial crisis is high-class sophistry. Tighter regulation of mortgage lending would have restricted the supply of the raw material that Wall Street needed for the securitization pipeline.
It is true that a bubble can be based on many different types of assets, not just consumer loans. But even if the crisis would have been possible without predatory lending, stronger consumer protection limits one source of bubbles "? and is good in and of itself. Would Greenspan say that taking advantage of customers is fine so long as it does not threaten the financial system?
Given the political appeal of stronger consumer protection, it may be difficult for opponents to take a strong line against a new agency (although the Chamber of Commerce has done its best). So opposition will most likely focus on weakening consumer protection behind the scenes.
One attack will likely be an attempt to subject the CFPA to "adult supervision."? Section 1023 of the current bill, "Review of Bureau Regulations,"? already allows the Financial Stability Oversight Council, a committee of regulators, to override any CFPA regulation it finds would endanger "the safety and soundness of the United States banking system or the stability of the financial sector."?
This is a curious provision. As Raj Date has pointed out, it's not clear what problem this is meant to solve, since "there is no empirical evidence that the over-protection of consumers ever has created systemic risks,"? and there's no precedent for giving heads of regulatory agencies veto power over the actions of a different agency.
It also allows a group of regulators who have historically been far from consumer-friendly to veto the decisions of the CFPA. As currently drafted, this section makes it relatively difficult for the FSOC to override the CFPA. However, opponents of consumer protection will probably attempt to widen the scope of this veto in order to make the CFPA subservient to traditional regulators.
Another threat involves federal preemption of state law. Preemption means that if a state attempts to set a higher regulatory standard than the federal government, the federal standard prevails. During the housing boom, federal banking regulators chose to preempt state laws against predatory lending that might have reined in subprime lending, replacing them with lax or nonexistent federal standards.
The Obama administration proposed to end federal preemption and allow states to set their own consumer protection standards. However, as described by Stacy Mitchell, author of Big-Box Swindle and a senior researcher with the New Rules Project and its Community Banking Initiative, financial sector lobbyists are hoping to cut a deal that restores federal preemption. Expanding preemption could effectively allow the Office of the Comptroller of the Currency to undermine the intentions of the CFPA.
Our economy needs a financial system that serves its customers, not one that sees them as marks to be taken advantage of. This should be one pillar of reform that everyone can agree on. But since everyone can't agree, supporters will have to be vigilant against attempts to cripple the agency in its infancy.
Johnson and Kwak are co-authors of 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, and of the economics blog BaselineScenario.com.
Name (required)
E-Mail (will not be published) (required)
Your Comments
Get latest news from The Hill direct to your inbox, RSS reader and mobile devices.
The Hill 1625 K Street, NW Suite 900 Washington DC 20006 | 202-628-8500 tel | 202-628-8503 fax
The contents of this site are © 2010 Capitol Hill Publishing Corp., a subsidiary of News Communications, Inc.
Read Full Article »