Business for Shared Prosperity

By: David Dayen
Firedoglake, March 2, 2010

Chris Dodd, currently in the bargaining stage on financial reform, has bargained down the Consumer Financial Protection Agency entirely down to nothing. I mean literally nothing.

The chairman of the Senate banking committee is seeking Democratic support for a Republican proposal to house a new consumer-protection regulator inside the Federal Reserve, a compromise that could clear the way for bipartisan legislation on financial reform, according to sources familiar with the negotiations.

Embracing the proposal marks a turnaround for Sen. Christopher J. Dodd (D-Conn.), who has lambasted the Fed repeatedly over the past year for not protecting borrowers from lender abuse. It is unclear whether other Fed critics, both Democrats and Republicans, will follow suit. The Fed already is responsible for writing consumer-protection rules, but it did not prohibit some of the most abusive mortgage and credit card lending practices during the housing boom.

As the article notes, consumer protection is ALREADY housed at the Fed. As Sen. Merkley said to me a few months ago, “If you think about the Fed, monetary policy is in the penthouse, safety and soundness is maybe a couple floors below that, and consumer protection is deep in the basement. And yet Bernanke has been arguing to return consumer protection to the Fed.”

And Dodd too, I guess.

The only change from the status quo in this iteration of consumer protection, part of a deal between Dodd and Sen. Bob Corker (R-TN), is that the President would appoint an independent consumer protection chief with their own budget and the mandate to write rules. However, the same regulators at the Fed who missed – or ignored – subprime mortgages and outrageous credit card practices would be responsible for enforcement.

Dodd first sought, along with the White House, an independent CFPA. Then he proposed it get housed at the Treasury Department. Now we have it back to the Fed, where the same people responsible for blowing the economy before would have another chance to do it again.

The President is likely to sign off on this, as per a statement last night, if it “includes independent appointment, an independent budget, and an independent ability to set and enforce clear rules of road to protect American families.” Enforcement would be at issue in this proposal. And one can reasonably question how “independent” the enforcement would be if housed at the Fed, no matter how the legislation is written.

Even business organizations have pushed for a strong CFPA. Just yesterday, the U.S. Women’s Chamber of Commerce, U.S. Hispanic Chamber of Commerce, South Carolina Small Business Chamber of Commerce, American Made Alliance, Main Street Alliance and multiple state business organizations signed a broad statement of support. “Businesses and consumers need a CFPA with independent rule-making and enforcement authority, not a weak bureau subservient to regulators concerned with protecting large banks rather than protecting small businesses and consumers,” said Tim Duncan, Chairman of American Business Leaders for Financial Reform. This coalition represents far more businesses than the US Chamber of Commerce. That statement is on the flip.

Democrats will have to decide whether they want to dare Republicans to oppose sensible consumer protection for financial products and a strong financial reform bill generally, or if they just want to pass “something,” no matter how ineffective.

We, the undersigned business owners, executives and investors, support the creation of a strong Consumer Financial Protection Agency (CFPA). This will help restore consumer confidence in the economy and benefit business, especially small businesses, which create most of the nation’s new jobs. Small business owners often rely on credit from a variety of sources, including use of personal credit cards and home equity loans, to start, run and expand their businesses.

The financial crisis has demonstrated the need for a new independent federal agency to promote financial product safety and establish clear, enforceable rules of the road. Business owners and consumers need full and fair disclosure of the costs and risks of financial products and services.

Those pushing misleading products with hidden risks undercut lenders offering sound mortgages and other credit. Reckless credit practices fueled the economic crisis that has driven businesses into bankruptcy and homes into foreclosure, destroyed jobs and wealth, and severely undermined our communities and economic prospects. Many businesses that survived the initial meltdown are being hurt by credit cuts and denials, abrupt interest rate and fee hikes, and other financial practices.

A Consumer Financial Protection Agency will expose unsafe products and services and encourage accountability and fair competition. It will help ensure we do not repeat the reckless practices we are paying dearly for today. Consumers, businesses and our economy will be better off with the establishment of a strong CFPA.

UPDATE: This puts Dodd arguably to the right of Richard Shelby on the CFPA. Shelby (R-AL) proposed housing the CFPA at the FDIC, which at least doesn’t have a proven track record of ignoring consumer products the way the Fed does.

http://news.firedoglake.com/2010/03/02/dodd-proposal-would-place-consume...