Alleged Exploitation Of Immigrants And Seniors Underscores Need For Consumer Protection Agency

ap090116021032Since the Obama administration announced its plan to create a new regulatory agency solely tasked with protecting consumers, there has been a steady drumbeat of opposition from the banking and business lobbies, Republican lawmakers, and the talking heads at CNBC. But today, there are a couple of reports highlighting why a consumer protection agency is so necessary.

First, the LA Times is reporting the story of former Bank of America teller Gabby Ornelas, who is accusing the bank of exploiting Latino immigrant consumers:

Ornelas was instructed to use her Spanish language skills and Latina heritage to sign up customers for as many kinds of banking services as possible, she said — services that led to lucrative fees for the bank and financial entanglement for many customers.

And then there’s McClatchy noting that “an influx of shady loan professionals have made lawmakers uneasy about the safety and soundness of the popular government-backed reverse-mortgage program”:

As the popularity of reverse mortgages grows, however, complaints are mounting that unsavory loan professionals who fled the troubled sub-prime mortgage industry now are plying their craft on unsuspecting seniors seeking the loans. Some agents, seeking higher fees, are steering loan applicants into costly long-term annuities, which almost always are inappropriate for seniors because they can tie up retirement savings for many years.

AARP also claims that predatory lenders are attempting “to get seniors to use proceeds of their reverse mortgage to buy expensive long-term-care insurance,” even though it often “makes more sense for seniors to use the payout for actual long-term care, not a hard-to-use insurance policy.” Earlier this month, Comptroller of the Currency John Dugan warned “that reverse mortgages pose significant compliance risks and said regulators should get out in front of this issue.”

Today, the Treasury Department delivered legislative language for the creation of the new agency to Capitol Hill. One of the agency’s main responsibilities, according to the draft language, will be prescribing rules “identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service.” The agency will also have the power to issue subpoenas and seek court orders to halt abusive practices for both banks and non-banks.

Currently, the regulatory system treats consumer protection “as secondary or even in direct conflict with ensuring the soundness of financial institutions,” but these two functions of the agency — creating rules to protect consumers and the use of enforcement mechanisms — will hopefully address that imbalance. As long as the new agency is adequately funded and given as much clout as the banking regulators, it can rein in those hawking abusive financial products to vulnerable populations.