Banks Hope to Scuttle Plan for New Consumer Watchdog

Puzzling story today in American Banker, which writes that the U.S. banking industry “refuses to engage” with lawmakers on Capitol Hill writing legislation to establish a so-called Consumer Financial Protection Agency (registration required).

Yet the same piece offers this quote from Scott Talbott, the chief lobbyist for the Financial Services Roundtable, about the trade group’s position on the bill: “Our goal is to kill it.” The Roundtable expanded on its position in a July 8 letter to members of the House Financial Services Committee, saying that it is “strongly opposed to the creation of another layer of regulation by a new agency, the Consumer Financial Protection Agency, proposed by the [Obama] administration.”

Sounds like engagement to me. As the article acknowledges, bankers are fighting an aggressive rearguard action against the measure, which would establish an agency to protect consumers against abusive mortgage, credit card and other financial practices. The banking industry’s allies, such as the U.S. Chamber of Commerce, are also on the attack. In Monday’s Washington Post, American Enterprise Institute senior fellow Peter Wallison derides the proposed agency as undemocratic and — in what amounts to curious spin for a think-tank that favors the flat tax and other regressive economic policies — elitist. The Obama “administration’s plan would allow the educated and sophisticated elites to have access to whatever financial services they want but limit the range of products available to ordinary Americans,” he huffed.

Not really. The CFPA is an attempt to codify and enforce simple safety standards for selling financial products — products, such as subprime mortgages, that financial firms slung for years at unqualified buyers like so much snake oil at a lepers convention. In retrospect, it doesn’t seem like such a bad idea to require banks to, say, reduce the average credit card agreement from 20 pages of semi-legible gibberish to a briefer document that a consumer — even educated and sophisticated elites — might comprehend. Another benefit of the agency is that it would bring the mission of consumer protection under one roof, given that for now the task is fragmented among at least seven federal agencies, a surefire recipe for failure.

Government regulation works best when it functions at ground level (think Food and Drug Administration). For financial services firms, that means where they originate their products. Besides, as Wall Street smolders and bank failures multiply, it seems clear that consumers aren’t the only ones that need protection.

Stephen Lerner image courtesy of The Financial Services Roundtable