Today, the Obama administration is rolling out its plan for reforming financial regulation, and a key facet of the plan is the creation of a consumer protection agency (which will be officially named the Consumer Financial Protection Agency). The agency will be charged with overseeing how financial products like mortgages and credit cards are marketed to consumers.
Yesterday, the banking lobby voiced its displeasure with the idea of a new agency, and advocated simply relying on the same regulators that let the house burn down in the first place. And according to National Journal, the bankers have found an ally in the Chamber of Commerce:
Firing a warning shot ahead of the Obama administration’s proposal for overhauling the nation’s financial regulatory system, the U.S. Chamber of Commerce today warned it will vigorously oppose creation of a stand-alone consumer safety commission for financial products. Creating such a regulatory authority “is not a silver bullet for enhanced consumer protection,” said David Hirschmann, president of the Chamber’s Center for Capital Markets Competitiveness. “In fact, it may be a lead balloon.”
Last week, the Chamber rolled out a $100 million campaign to “defend and advance economic freedom.” The Chamber’s press office wouldn’t talk to me because it’s “not entertaining calls from bloggers at this time,” but I’d sure like to know if any of that $100 million is going towards lobbying against this new agency.
Anyway, if it’s designed correctly, a consumer protection agency could be a very good thing. Part of the leadup to this crisis was no one adequately policing mortgages on the ground level. Thus, lots of lousy loans were handed out and then sold to Wall Street, which securitized them and came back for more, fueling more bad lending.
As Matt Yglesias points out, it’s unclear how much of this was fraudulent lending, but in light of stories like that involving Wells Fargo — which is accused of intentionally steering minorities who qualified for prime loans into subprime — I’m sure the agency will have some things to look at. It’s also encouraging that the agency’s rules “wouldn’t pre-empt state laws, which mean states could push for tougher policies banning certain lending practices.”
That said, the agency will only be effective if it’s on par with the banking regulators and can keep up with financial innovation. It can’t be second tier, without enough resources or stature to do its job effectively. The administration’s plan calls for “stable, robust funding,” and giving the agency “sole rule making authority” in terms of consumer protection. We’ll see if Congress decides to grant those requests.