Star Ledger: Consumers deserve protection from financial institutions, too

Posted by Phyllis Salowe-Kaye/ Star-Ledger Guest Columnist August 06, 2009 5:16AM

Categories: Economy
ANDREW MILLS/THE STAR-LEDGER Elizabeth Warren is the chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout, formally known as the TARP -Troubled Assets Relief Program.

Most reasonable people would have a hard time arguing against a consumer protection law that prevents kids’ pajamas from being made with fabric that might spontaneously combust. So why are the toxic financial products and practices that caused our credit market to combust any different?

The creation of a single regulatory agency to protect consumers by prohibiting harmful, unfair, deceptive or abusive practices was the brainchild of Elizabeth Warren, a Harvard professor and chairwoman of the Congressional Oversight Panel created to oversee the banking bailouts.

Her logic is flawless: Make banks and credit card companies develop simple products that ordinary people can understand so they can make comparisons and informed decisions. No more tricks and traps with teaser rates in big print and then the real terms hidden in pages of fine print.

President Obama listened to her and called on Congress to create a Consumer Financial Protection Agency. Surprise, surprise, the big banks and their lobbyists have amassed millions of dollars to mount a pushback campaign and are busy at work opposing the CFPA, fearful of a reduction in their profits and artfully arguing that increased regulation will actually lessen consumer access to loans and other financial products. They just forgot to add an adjective before the words loan and financial products. Take your pick: “unfair,” “abusive,” “deceptive,” “unsafe” would all work. Isn’t that exactly what we need?

Clearly, consumer protection laws prevent consumers from having access to unsafe products and the extension of those protections into the financial product market will necessarily limit consumer access to unsafe financial products. Offering financial products that are in the best interest of the consumer will promote safety and soundness in consumer investing and is an important first step in creating regulatory reform that will restore integrity and accountability to credit markets and ensure recovery of the economy.

The administration’s proposal called for shifting the Community Reinvestment Act, along with other consumer protection laws, to the CFPA. That’s a smart move. CRA is one of the most important laws for building wealth and revitalizing neighborhoods and it helps keep banks honest by making them report specific loan data for low- and moderate-income neighborhoods, ensuring that consumers in traditionally underserved communities have access to safe and sound financial products. The CFPA proposed by the president would have broad institutional oversight of enforcement responsibilities for the wide range of financial consumer protection laws already in place, including CRA, and bolsters the chances of passage of the Community Reinvestment Modernization Act of 2009, which now has 48 co-sponsors in the House including New Jersey Rep. Donald M. Payne (D-10th Dist.). This law would strengthen CRA as it is applied to banks and expand CRA’s reach to non-bank financial institutions. There is a critical need to have independent mortgage companies and other non-bank lenders subject to the same rules as banks. Quite simply, if you are doing the same business, you should be subject to the same rules.

Unfortunately, big banks and their lobbyists have already been successful at watering down the president’s proposal. As a result, the bill introduced into Congress on July 9 by Chairman Barney Frank (D-Mass.) of the House Financial Services Committee, left the power to enforce CRA with the existing regulatory agencies. We are hopeful that with the support of the New Jersey congressional delegation, the final bill will put those enforcement powers back with the CFPA as the president intended. One agency can more effectively implement consumer protection and fair-lending laws rather than the four current agencies vying for bank fees by being lax in regulatory review and enforcement. The CFPA would not feel the pressure to be lenient since all institutions would be subject to its regulatory authority. One independent agency is required to ensure that consumers are protected against abuse, unfairness, deception and discrimination.

The battle for financial reform has just begun and 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.

New Jersey’s congressmen and senators should support the president’s proposal for the creation of a Consumer Financial Protection Agency and also to work with their colleagues to strengthen and expand the president’s proposal to put jurisdiction of CRA under the new agency and to address financial institutions that are “too big to fail,” to help keep struggling families in their homes, to further fair housing and to add measures to ensure that the Federal Reserve, with its proposed new powers, is truly independent and accountable to the public.

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