Today, the House Financial Services Committee began to debate the legislation that would create a new Consumer Financial Protection Agency (CFPA). Predictably, Republicans — who are staunchly opposed to the agency — broke out their false arguments about the agency restricting credit and eliminating jobs, but they also decided to tap into some of the GOP–generated “czar” hysteria by claiming that the CFPA’s director will be a “financial product approval czar”:
Rep. Jeb Hensarling (R-TX): [Consumers] have to go on bended-knee to this new federal czar for financial services product approval and beg that they can have a credit card or a mortgage.
Rep. Spencer Bachus (R-AL): The legislation gives this new agency and it’s czar-like chairman power to impose both fees and taxes on all financial products, which they broadly design.
But more importantly, the point of the agency is not to approve mortgages or credit cards for individuals. The CFPA Director will not pull up John Smith’s credit report and decide whether or not he can have a Visa. Much like the Credit Cardholder’s Bill of Rights that was signed into law earlier this year (which placed outright bans on certain unfair practices), the CFPA will be able to ban products deemed deceptive or predatory.
For instance, as Federal Reserve Chairman Ben Bernanke advocated, no-doc loans (in which mortgages are given to consumers without any documentation supporting incomes or assets) should be done away with. Ditto for pay-day loans that have interest rates that climb to 400 percent or signing up consumers for exorbitant overdraft protection without actually telling them.
And of course, a lot of the subprime lending that led to the housing bubble — essentially the kind of lending that “occurs when the lender’s business model is based on making profits based on fees and defaults, not on the normal performance of a loan” — should be banned, as they have no legitimate purpose other than driving profits for mortgage lenders at the expense of borrowers. I’m willing to bet that their aren’t many homeowners who will be saddened to find that they can no longer access loans which result in them owing more on their house five years into their mortgage, despite making monthly payments. But that’s exactly what the GOP is advocating for.