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Con: Congress should ensure consumers get quality financial protection

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Sarah Jane Hughes
September 19, 2009
EDITOR’S NOTE: The writer is addressing the question, Should Congress scrap the proposed Consumer Financial Protection Agency?

Congress should not adopt the Obama administration’s plan to create the Consumer Financial Protection Agency from agencies around Washington as it now stands. Taxpayers deserve better.


To solve the “consumer protection problem,” Congress should do three things: (1) identify what did not work, and what did; (2) fit the solution to the actual problems found; and (3) keep functioning consumer protection agencies working—so that people won’t wait years for a new agency to get down to work.


Here are some ideas about how Congress might provide more protection for consumers faster and better than the administration’s plan:


n Fix only what’s broken: consumer protection enforcement for banks and thrifts. It’s not true that all regulators failed to protect consumers. The Federal Trade Commission has a 40-year record of enforcing federal consumer credit laws and prosecuting companies for unfair, deceptive and abusive consumer practices. The National Credit Union Administration’s record also is unblemished. The states have worked hard to enforce their own laws, even though federal bank regulators fought them repeatedly and all the way to the U.S. Supreme Court twice in the last two years.


n Don’t give the regulator types more authority for a proverbially bigger chicken coop after federal bank regulators got too cozy with banks. Treasury had jurisdiction over both the Office of Thrift Supervision and the Office of the Comptroller of the Currency for the last 20 years. Don’t let Treasury direct this new bigger consumer protection mission alone.


n Don’t fall for Washington’s “a new agency will fix everything” promise. People who need protection—such as help understanding credit options or finding a way out of a sub-prime mortgage mess—don’t have time to wait for a new agency. The Department of Homeland Security has taken years to get to work with workers assembled from many agencies, through at least two publicly announced rounds of reorganization. Treasury’s plan transfers personnel from five agencies—the Office of Thrift Supervision and the Comptroller of the Currency, the National Credit Union Administration, the Board of Governors of the Federal Reserve System, and the FTC—a task similar to making the Department of Human Sservices.


n Don’t take regulatory or enforcement functions away from the FTC, the NCUA or the states. Follow the adage, “if it’s not broken, don’t fix it.” Congress should leave current authority for nonbanks where it is, perhaps giving the FTC additional resources to handle consumer protection.


n Don’t buy the “one agency is better” argument. Treasury gives one regulator jurisdiction over thousands of commercial banks and thrifts, large and small finance companies, and more than a million smaller creditors such as auto dealers, furniture stores, check cashers, remittance companies, and issuers and sellers of stored-value cards. These entities vary tremendously in size, and some operate in only one town or county.


Big agencies tend to organize into specialization groups: in this case, it could mean one for depositary institutions and another for nonbanks. This sounds a lot like the status quo, particularly when many of the same people who worked for the bank regulators will move to the new CFPA. And with Treasury’s one-regulator plan, we’ll lose the enforcement push and competitive innovation that the FTC and the states provide.


Congress should create only what we need: a new federal bank and thrift-focused agency to solve problems banks and thrifts caused. Credit unions, community banks, check cashers, and small-town lenders such as auto dealers and homebuilders did not cause the recession or the credit crunch we’re suffering.


Congress should fix the broken bank-thrift consumer protection mission and possibly some issues with mortgage origination outside the bank regulatory environment.


Sarah Jane Hughes is a fellow in commercial law at Indiana University’s Maurer School of Law, specializing in banking regulation and privacy law. Readers may write her at IULAW, 266 Law Building, 211 South Indiana Ave., Bloomington, Ind. 47405-7001.

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