There is a new fight coming to Washington, D.C., next week, and it probably won't generate the level of visceral hostility that makes the current tussle on healthcare reform seem more like an Ultimate Fighting Championship bout than a political debate. The issue is the proposed Consumer Financial Protection Agency (CFPA), a new entity that would be responsible for regulatory enforcement of nearly all federal consumer financial protection laws.
President Obama, in his Sept. 14 speech on Wall Street, argued that the CFPA is being designed to make life easier for the average American who goes out in search of money to borrow.
‘The [CFPA] will have the power to ensure that consumers get information that is clear and concise, and to prevent the worst kinds of abuses,’ Obama said. ‘Consumers shouldn't have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or debit card that appears without warning on their statements.’
The president also told his Wall Street audience that the lack of a single regulatory agency focusing on consumer loan products was a key reason that we are in a recession.
‘Now, one of the main reasons this crisis could take place is that many agencies and regulators were responsible for oversight of individual financial firms and their subsidiaries, but no one was responsible for protecting the whole system,’ he continued. ‘In other words, regulators were charged with seeing the trees, but not the forest. And even then, some firms that posed a 'systemic risk' were not regulated as strongly as others, exploiting loopholes in the system to take on greater risk with less scrutiny. As a result, the failure of one firm threatened the viability of many others.’
In reality, Obama is half on-target. A system of federal regulatory bells and whistles was in place for years – but no one bothered to blow the whistles or ring the bells for most of this decade. Whether the regulators were housed under a single roof or multiple roofs is not relevant – this was simply a question of regulators not doing their jobs.
So far, the opposition to CFPA has not been impressive. The U.S. Chamber of Commerce is taking a lead in the fight, and it has created a $2 million advertising campaign to stop the agency's creation. The chamber's ads are now running in the Washington, D.C.-area media outlets and should be spreading to other major media markets shortly. There is also an online component at StoptheCFPA.com, which is designed to encourage the public to lobby tp their elected officials.
But if the CFPA's opponents are expecting a level of public reaction that is equivalent to the hubbub on the healthcare debate, forget about it. Some people may not want the federal government monkeying with the healthcare system, but there is no mass movement to keep a hands-off attitude on financial services providers. After all, people dislike the financial services industry more than they dislike Washington politicians.
Not surprisingly, the Chamber of Commerce's advertising avoids making any mention of bankers, lenders or any financial services sector in its advertising – clearly out of fear of being accused of propping up the folks who gave us our current fiasco. They're pushing the anti-CFPA message as being an obstacle to the viability of smaller businesses rather than an added burden of responsibility for lenders.
But, really, the chamber's push seems to be in vain. The CFPA proposal is already part of a bill in the House Financial Services Committee, which is set to hold a hearing on its merits on Sept. 30. The Senate Banking Committee doesn't have its version ready yet, but we can expect to see it in the near future. The respective chairmen of both committees – Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., have already made it very clear that consumer protection legislation is a priority for them.
Unless highly likely circumstances take root, it appears that the CFPA will become a reality. Only time will tell whether CFPA will help or hurt the industry. But the fact that the agency is going to be steamrolled into law shows that the industry has a long, long way to go before it recovers the level of political clout and public trust that it once possessed
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– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b].
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