CFPA Gets Big Boost From Obama

The White House actually made news today. Really, and it had nothing to do with Norway. The President came out with a full-throated endorsement of the Consumer Financial Protection Agency, actually foregrounding it among all the other elements of financial regulatory reform.

But a central part of our reform effort is also aimed at protecting Americans who buy financial products and services every day -- from mortgages to credit cards. It's true that the crisis we faced was caused in part by people who took on too much debt and took out loans they couldn't afford. But my concern are the millions of Americans who behaved responsibly and yet still found themselves in jeopardy because of the predatory practices of some in the financial industry. These are folks who signed contracts they didn't always understand offered by lenders who didn't always tell the truth. They were lured in by promises of low payments, and never made aware of the fine print and hidden fees [...]

As we've seen over the last year, abuses like these don't just jeopardize the financial well-being of individual Americans -- they can threaten the stability of the entire economy. And yet, the patchwork system of regulations we have now has failed to prevent these abuses. With seven different federal agencies each having a role, there's too little accountability, there are too many loopholes, and no single agency whose sole job it is to stand up for people like Patricia, Susan, Maxine, Andrew and Karen -- no one whose chief responsibility it is to stand up for the American consumer, and for responsible banks and financial institutions who are having to compete against folks who are not responsible.

So under the reforms we've proposed, that will change. The new Consumer Financial Protection Agency that I've asked Congress to create will have just one mission: to look out for the financial interests of ordinary Americans. It will be charged with setting clear rules of the road for consumers and banks, and it will be able to enforce those rules across the board.

This was an idea from Elizabeth Warren that had absolutely no traction in Washington, and now the President of the United States is backing it in major speeches. He even attacked the US Chamber of Commerce for opposing it. To me, that's a big deal. But Oslo went and ruined everything. Oslo!!

I was on a conference call with Austan Goolsbee after the speech, and he emphasized three key points:

1) transparency - the importance of writing rules for credit cards, loans, etc., in clear language with full disclosures
2) fairness - it's time to get rid of unfair or predatory practices like payday lenders, and level the playing field for community banks.
3) accountability - not only would financial institutions and regulators be held accountable (the thinking is that the only thing a CFPA regulator would do is protect consumers, instead of the current disparate nature), but consumers would be able to take responsibility without being taken advantage of.

There was a reporter from the Philly Inquirer on the call who had the gall to say that the people affected by deceptive practices in the financial industry "made some dumb decisions." This is going to be the standard claim from the right (remember Rick Santelli's "I don't want to subsidize the loser's mortgages" rant?) so it's important to be armed with the facts. The fact is that regardless of whether you "go out there and shop" (another claim by this lunatic), financial products are written currently in deliberately obtuse ways, and the profit margins of the lenders or banks are directly proportional to how much of the fine print they can hide. People intuitively know this, and all the associated games along with it. And they deserve a federal agency at least tasked with looking out for them.

Now unfortunately, some of this comes a little late, as the National Community Reinvestment Coalition mentioned today:

“We applaud the President’s necessary leadership on financial reform. Clearly the President felt it necessary today to speak out against the weakening of the bill. Unfortunately, the damage from corporate lobbying in Congress may have already been done,” said John Taylor, president and CEO of NCRC.  "The ability of the proposed Consumer Financial Protection Agency (CFPA) to protect the most financially vulnerable individuals and communities has already been undermined by substantial changes to the bill.”

“Most importantly, the proposed agency will not have sufficient independence from the existing regulators, whose failure to enforce the law was the reason for the establishment of the agency,” said Taylor. “The exclusion of enforcement of the Community Reinvestment Act was also a major concession to the financial services lobby, and allows them to continue to shirk affirmative obligations to serve and lend to working class Americans, within the constraints of safe and sound underwriting.”

In particular, Taylor is talking about the removal of "plain vanilla" financial products that would set a baseline standard for what's minimally required. And that's true. But it's good that Obama jumped in now before this weakens any further. And it would be good to re-emphasize this after the Nobel fervor blows over.