Today, representatives of the banking and mortgage industries appeared before the House Financial Services Committee to provide their perspectives on the Obama administration’s proposed Consumer Financial Protection Agency (CFPA). Since the administration first floated its proposal, the banks have been united against it, and Republicans have bought into the bank’s false assertion that the new agency will deny individual families specific financial products.
During today’s hearing, Reps. Randy Neugebauer (R-TX) and Judy Biggert (R-IL) outlined the GOP’s alternative to the administration’s plan, which involves keeping both bank supervision and consumer protection “under one roof,” as they kept saying. But failure to break consumer protection away from traditional bank regulation is exactly what the bank lobbyists who appeared before the committee are hoping for. Here is a video compilation, with the GOP outlining its plan and then the bankers offering the exact same set of idea and concepts. Watch it:
But under the current system, regulators have the responsibility for both consumer protection and the safety and soundness of institutions, and what’s profitable for an institution often directly flies in the face of what is good for consumers. As Adam Levitan explained:
Unfortunately, the market drives the introduction of bad consumer credit products…The only way high-cost products that skim consumer surplus are able to compete in the credit market is through price obfuscation. Some of this obfuscation is through fine-print. Some is through product design, as complexity and exploitation of consumers’ cognitive biases can mask pricing…Basically, the consumer credit market is a market in which competition often encourages bad products, and this calls for regulatory intervention.
Banks pulled in record profits during the subprime boom by engaging in the very practices that contributed to the economic meltdown. There’s a tension between consumer protection and bank profits, and in recent years, the banks always won. There’s no indication that a consolidation of regulators will reduce that inherent problem.
If the financial meltdown taught us anything, it’s that existing bank regulators are simply too far removed from the action on the ground to adequately police consumers and giant, complicated financial institutions simultaneously (which is also why individual states need to be allowed to go beyond federal regulation). Consolidation of the bank regulators is fine, but it won’t make them focus any more of their time on consumers. A new agency, focused solely on consumer protection, will hopefully address that imbalance. The banks, though, want to preserve the status quo and the Republicans have thus far been willing accomplices to achieving that goal.