Elizabeth Warren, TARP watchdog,  gives a few words of wisdom regarding the Consumer Financial Protection Agency so-called “compromise” currently being discussed in the Senate.  In an recent interview Warren said the following: “[m]y first choice is a strong consumer agency,” the Harvard Law professor and federal bailout watchdog said “[m]y second choice is no agency at all and plenty of blood and teeth left on the floor…….’[m]y 99th choice is some mouthful of mush that doesn’t get the job done,” Warren said.

Warren listed the four things that the Consumer Finance Protection Agency MUST have to be effective:

• A chief appointed by the president, confirmed by the Senate;  
• Independent budget authority, so it won’t be subject to the whims of Congress or an anti-consumer administration;  
• Independent rule-making authority, without interference by bank regulators or others who may focus on bank profitability before focusing on consumers;  
• And independent enforcement powers, so the agency’s investigators can go after abusive lenders. 

“Those are the basic elements of an independent agency,” Warren said. “It’s not as if there’s some fifth thing that was left off that list — that is the list.”  Warren also spoke about the CFPA that was included in the financial regulatory bill passed by the House last December:  “It’s a muscular agency, and that’s what really matters,” Warren said.  ”It’s not perfect — there’s no excuse for excluding used car dealers — but it’s strong,” she said. “The agency that passed the House will get the job done.”

The TARP watchdog believes that it does not matter where the new agency is located but that it has real independence.  Some have disagreed with Warren and argued that housing such an agency in somewhere like the Treasury Department or the Federal Reserve would make a difference in terms of its effectiveness.  We agree.  There is a reason that the bank lobbyists are pushing for a CFPA room rental instead of a house of its own…..proximity matters.

Take a look at the other argument being made by the banks and Sens. Bob Corker (R) and Richard Shelby(R) and a response to it by Rep. Brad Miller (D-NC):

The banks and Dodd’s chief negotiating partners, Sens. Richard Shelby (R-Ala.) and Bob Corker (R-Tenn.) argue that banking regulators must have veto power over consumer protections, because restricting some bank activities could harm the institutions and put at risk their “safety and soundness.”

But Rep. Brad Miller (D-N.C.) wondered aloud how banks could argue that preventing them from ripping off consumers puts them in jeopardy.

“It would be one thing if they were saying, ‘They’re making us do things that will cause us to lose money.’ But they’re saying, ‘If you don’t let us do these things because they’re abusive to consumers, we won’t make enough money to survive,’” Miller said.

“The legislation doesn’t require the banks to offer anything. It would prohibit certain practices. So their argument is, they have to be able to cheat consumers to stay solvent. I’m not sure I’m persuaded by that argument, or that a bank that has to cheat consumers to stay solvent is one we should keep afloat. Maybe it’s time to send in the FDIC.”

Take a look at some other specs:

How do the banks fend off needed reform? Follow the money. A recent report by Paul Blumenthal of the Sunlight Foundation shows that the 27 members of the House Financial Services Committee have received over one-fourth of their contributions from the FIRE (Finance, insurance and real estate sector). Ranking Republican Spencer Baucus from Alabama opposes the CFPA, arguing that we don’t need “more regulation,” we just need “smart regulation.” He received a staggering 71% of his contributions from the finance sector over the first six months of this year (and 45% of his total contributions over his career). Democrat Melissa Bean who leads the effort to gut state regulatory authority over the banks has received fully 42% of her contributions for the first six months from the banking sector. Not surprisingly, the champions of reform like Rep. Alan Grayson, Maxine Waters, Keith Ellison, Adam Putman, and Carolyn McCarthy all pull in the lowest percentage from the sector.

A remorseful John S. Reed, former Chairman and CEO of CitiCorp, appeared before the Senate Banking Committee yesterday as he called for full financial regulatory reform including a dedicated consumer-focused financial protection agency.  ”There seems to have been a key failure that none of us anticipated,” Reed said in a prepared statement at a Senate Banking Committee hearing, “namely, individual institutions which are thought to take steps and exercise judgments to insure their self-preservation turned out ‘not to have’ or been incapable of so doing.

The former Chairman and CEO went further:

In response to a question from Senator Bob Corker (R-Tenn.), who called Reed’s testimony “fascinating” given that he presided over Citigroup at a time when it was expanding in all these areas, Reed said it was exactly that experience that informs his view now.
“I learned a lot,” Reed said, joking that this may be the first time he has ever agreed with former Federal Reserve chairman Paul Volcker on anything. “There’s no question that when we put Travelers and Citi together we created a monster.”

“My honest belief having experienced it…is that the system would be stronger if we could provide for some separation where major depositories are not major actors in the capital markets,” Reed said.

“This clearly means that in designing a robust system, we cannot count on that capacity.”  Mr. Reed decribed what the essential elements of financial regulatory reform must be below.

The capital held by financial firms to protect against potential losses “should be significantly increased, maybe doubled.” He added that he thinks the concept of “risk adjusted capital,” a complex system used by regulators to judge whether a bank has adequate cash, “is flawed.”

The industry should be “compartmentalized” to limit the spread of failures and to preserve “cultural boundaries.”

Traded products (to the extent possible) should flow through exchanges. Much of the derivatives market is currently in the dark, traded over the phone rather than through a centralized exchange where regulators could know what’s going on.  

A consumer-focused financial protection agency with a “clear and separate mandate” should be created.

Are you listening Sen. Dodd???

The consumer cannot invoke the laws of the Consumer Financial Protection Agency through a civil right of action if a credit card company violates the rules????  The consumer must wait for the overworked Attorney Generals and the state’s (probably captured) Banking Commission  to bring a criminal complaint against the credit card company??  Seriously???  Thousands of consumer are protesting at the American Bankers Association in Chicago due to the arbitrary raising of interest rates and continued gouging of the consumer that the banking industry continues to engage in during this period preceding the full enactment of the Credit Cardholders Bill of Rights.  Call your Congressman and tell them that you want the right to sue credit card companies for deceptive or unscrupulous business practices.

Apparently Congress has not been to Chicago lately.  It appears that corporate america has once again captured our legislative branch.  When asked why consumers do not have a private right of action in the bill Rep. Barney Frank responded that the Obama Administration didn’t ask for a private right of action.  A private right of action would definitely keeep the credit card industyry on its toes.  We will do more research on this and let you know the pluses and minuses to a private right of action for the consumer.  It is this writer’s opinion that Congress believes that we are paying so much attention to the health care rebate that we forgot about the huge blunder that put us in this recession in the first place.  So it has decided to try and pass “reform” in the way of a gutted consumer protection agency that has no real power or authority.

Not to mention that fact that according to the bill federal law can preempt stronger state banking laws if it can be shown to seriously interfere with national banking, i.e. not uniform. What???

Major financial institutions have been particularly concerned that the CFPA would create a floor, rather than a ceiling, for financial consumer protection standards, which potentially could subject them to fifty different regulatory schemes.  Representatives Mel Watt (D-NC) and Moore offered an amendment to grant preemptive effect to federal law if a state law would have a discriminatory effect on national banks.

Further, there are too many exemptions for certain industries that result in huge limitations on the CFPA powers.  Take a look at the list below:

1. The first amendment offered, by Representative Joe Donnelly (D-IN), exempted manufacturers of modular homes.
2. Representative Brad Miller’s (D-NC) amendment to exempt banks whose assets under management are less than $10 billion and credit unions whose assets are under $1.5 billion from significant parts of CFPA coverage.
3. Chairman Frank’s amendment to clarify that stores that offer store credit will not fall under the CFPA’s purview;
4. Representative Tom Price’s (R-GA) amendment to exempt employee pension benefit plans;
   Representative John Campbell (D-CA) and Bill Posey’s (R-FL) amendment to exempt automobile dealers, including those that finance automobile purchases by non-retail customers;
5. Representative Dennis Moore (D-KS) and Erik Paulsen’s (R-MN) amendment to exempt forms of insurance, including auto, life, and homeowners;
6. Representative Donnelly’s amendment to exempt manufacturers of modular homes.

CONGRESS we NEED REAL REFORM!

The Consumer Financial Protection Agency moved through the House Financial Services Committee yesterday and will soon be on its way to the House floor.  Though the CFPA is a bit weaker it is still moving.  The Agency will be solely devoted to protection of consumers against the unscrupulous practices of financial institutions.  Republicans fought tooth an nail against passing the Act through the committee.  One of the GOP’s main arguments is that Te Federal Reserve already has the power to protect consumers and they are ready to use it now.  Well despite the fact that the Federal Reserve’s first priority is the health and success of the banks thus creating a huge conflict of interest for the regulatory agency.  But Democrats also argued the following:

“What did the prudential regulators do to protect consumers? Nothing. Zero. Zilch. They didn’t do a thing,” Rep. Luis Gutierrez (D-Ill.) said, noting that the Fed has already had consumer protection powers since 1994 but that they went unused for 12 years. “I think enough has been said here in this committee about the markets. The markets. Always concerned about the markets. Well, you know what? Those markets caused trillions of dollars in losses to men and women who live on Main Street across this country.”

The paying out of huge bonuses in the last couple of days helped to move this along a bit more quickly.  Elizabeth Warren, the person who originated this idea a few years ago, has been a stalwart advocate and has been very instrumental in bringing the CFPA to fruition.

As lawmakers move toward the regulatory overhaul of the financial industry lobbyist have stepped up their efforts.  Millions are being spent to prevent the creation of the Consumer Financial Protection Agency but the American people and Congress must remain vigilant. 

House Financial Services Committee Chairman Barney Frank (D-Mass.) is preparing a new draft of legislation that would set up a Consumer Financial Protection Agency (CFPA) with broad authority to regulate consumer products such as home loans and credit cards.

The U.S. Chamber of Commerce is leading a coalition of 25 lobbying associations against the agency plans. The associations include: the Business Roundtable, Consumer Bankers of America, Financial Services Roundtable and National Association of Homebuilders, among others.

At the same time, a group of 15 law professors sent lawmakers a letter this week backing the new regulatory agency.

The proposal for a new agency has emerged as an early flashpoint in the broader debate over a series of new financial regulations that also include major changes to the regulation of banks and complicated financial derivatives

See remainder of article here.

Elizabeth Warren, the Chair of the Congressional Oversight Panel and the person who originally proposed the idea of the Consumer Financial Protection Agency in the 2007 said the following during a Congressional hearing regarding TARP funds: “People are angry that even if they have paid their bills on time consistently and never missed a payment, their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines,” said Warren, who elaborated further about the populist anger over foreclosures and the lack of small business financing.

And in terms of decreasing credit lines the banks are doing just that.  One particularly notable dirty trick the industry is using is slashing credit lines of their customers so that the customer then ends up over their credit limit.  The banks then charge over-limit fees and/or raise the customer’s interest rate even though the consumer is only over his/her credit limit because the bank lowered the customer’s limit after the purchases were made.  Very unscrupulous.  Another trick the industry is trying as a way to increase your promotional interest rate is by attempting to negotiate your payment each month from a higher percentage of your balance to a lower percentage of your balance if you accept a higher interest rate.  Though industry practice prior to the new regulations was three percent, the rule is that banks can charge you between three and five percent of your balance as a monthly payment.  This is a trick on the consumer because there is nothing in place to prevent that same credit card company from coming back to you the following month to negotiate with you to accept and even higher rate in exchange for a lower payment.  Don’t fall for it.  All of these deceptive tactics are being utilized to take full advantage of the non-existent laws before the Credit Cardholders Bill of Rights goes into full effect in February 2010 and because there is no consumer protection agency.  The credit card companies are attempting to gouge consumers by any means necessary which is why consumers need a protection agency whose sole focus is to prevent such practices.   

Some of the reasons cited by Warren as to why it’s vital that we have  Consumer Financial Protection Agency:

• It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street — and the mortgage won’t even carry a disclosure of that fact to the homeowner.
• Consumers would greatly benefit if an independent commission existed to create safe harbors for credit card agreements or ensure that mortgages didn’t keep individuals confused about interest rate hikes.
• It can be proactive rather than reactive.”Three or four years down the line firms will come up with some new idea that they haven’t thought of yet that will have some destabilizing impact on the market,” said a Warren confidant. “Rather than waiting for Congress to come back and take action, you would have a regulatory agency already set up.” 
• Sens. Durbin, Schumer and Kennedy wrote to Treasury Secretary Geitner urging the creation of CFPA because ”we cannot effectively manage systemic risk and restore the confidence of American families in the financial system without making sure that the financial products themselves are safe.”

The Americans for Fairness in Lending has cited the top six reasons for having the Consumer Financial Protection Agency:

• Consumer protection would be the CFPA’s only mission, so consumer interests would not be subordinated to other concerns.
• The CFPA would regulate all companies that are involved in consumer lending, so that companies would not be able to seek out a regulator with looser standards or to avoid regulation entirely.
• The CFPA would impose the same rules on all companies offering the same products, regardless of their charter or corporate form, so all consumers getting the same type of loan would receive the same protections.
• The CFPA would have the authority to both write and enforce rules, thus eliminating the disconnect that can lead to gaps in the current system.
• As the single agency charged with consumer financial protection, the CFPA would have the motivation and the resources to be able to collect the data, carry out the research, and develop the expertise that are needed to regulate effectively.
• With its data, expertise, and unified authority, the CFPA would be able to respond to new abusive practices and products promptly and effectively.

Americans for Financial Reform sums it up:

• A strong federal commitment to robust consumer protection is central to restoring and maintaining a sound economy.  The nation’s financial crisis grew out of the proliferation of inappropriate and unsustainable lending practices that could have and should have been prevented.  That failure harmed millions of American families, undermined the safety and soundness of the lending institutions themselves, and imperiled the economy as a whole.

THE WHITE HOUSE

Office of the Press Secretary
__________________________________________________________________________
For Immediate Release                                               September 14, 2009

REMARKS BY THE PRESIDENT
ON FINANCIAL RESCUE AND REFORM

Federal Hall
New York, New York

11:59 A.M. EDT

THE PRESIDENT:  Thank you very much.  It is wonderful to be back in New York after having just been here last week.  It is a beautiful day and we have some extraordinary guests here in the Hall today.  I just want to mention a few.

First of all from my economic team, somebody who I think has done extraordinary work on behalf of all Americans and has helped to strengthen our financial system immeasurably, Secretary Tim Geithner — please give him a big round of applause.  (Applause.)  Somebody who is continually guiding me and keeping me straight on the numbers, the chair of the Council of Economic Advisers, Christina Romer is here.  (Applause.)  We have an extraordinary economic recovery board and as chairman somebody who knows more about the financial markets and the economy generally than just about anybody in this country, Paul Volcker.  Thank you, Paul.  (Applause.)  The outstanding mayor of the city of New York, Mr. Michael Bloomberg.  (Applause.)  We have Assembly Speaker Sheldon Silver is here, as well; thank you.  (Applause.)

We have a host of members of Congress, but there’s one that I have to single out because he is going to be helping to shape the agenda going forward to make sure that we have one of the strongest, most dynamic, and most innovative financial markets in the world for many years to come, and that’s my good friend, Barney Frank.  (Applause.)  I also want Read the rest of this entry »

The President is giving a speech today on the progress that has been made with respect to overhauling our financial regulatory system.  The credit card and the rest of the financial industry has unleashed its lobbyists on Capitol Hill to the tune of millions of dollars in an effort to thwart the administration’s efforts to overhaul the financial regulatory system.  More specifically preventing the creation of the Consumer Financial Protection Agency is the industry’s highest objective. 

Mr. President we desperately need this agency and cannot afford to continue spreading the responsibility for protecting consumers within the financial markets among ten different agencies that have other much higher priorities.  The agencies currently delegated with this task failed miserably as was demonstrated by the near financial collapse.  Further, and as noted by your chair of the Congressional Oversight Panel, Elizabeth Warren, “[c]onsumer financial products were the front end of the destabilization of the American economic system.”  Obviously all ten regulatory agencies currently charged with consumer protection responsibilities were distracted with other priorities prior to and during the financial meltdown and therefore would not give this aspect of regulatory reform the attention it needs.  We need an agency whose sole mission, purpose, and focus is protecting consumers. In addition, there appears to be a conflict of interest with bank regulators like the Federal Reserve taking on the consumer protection aspect of financial regulatory reform.  A bank regulator’s primary goal is the “safety and soundness” of banks and a bank’s profitability even if its at the expense of exploiting consumers.  Therefore, consumer protection cannot be a high priority at the same time as the profitability and soundness of banks being a priority.  Bank regulating agencies will be less inclined to enforce consumer protection laws if a bank is failing because the regulators main job is to help prevent the bank from failing and the risk of the manipulation or unfair practices perpetrated against the consumer is secondary.  Also, because companies can choose which agency regulates them by how it decides to form as a corporation (e.g. charter, bank, etc.), bank regulators are incentivized to regulate without bite or not be tough on banks because such a reputation will result in banks choosing one of the other nine agencies to regulate it by choosing a different corporate form to operate under.

In short Mr. President, we need the Consumer Financial Protection Agency more than ever because banks have already begun re-engaging in the same irresponsible risk-taking behavior that caused the current recession and the credit card industry is already engaging in deceptive practices as a work around to recently passed consumer protection laws.  As for the financial industry, it is engaging in excessive risk-taking again because no significant changes have been made to the financial regulatory system.  Unfortunately turf-protecting regulators, lobbyists, and Congress have slowed the overhaul process down considerably but we cannot afford to continue at this snail’s pace.  Because banks are again taking risks far greater than the CYA capital they have on hand our financial system is again in jeopardy.  The banking industry continues to operate under the assumption that they are “too big to fail” and that is not healthy for consumers.

Therefore Mr. President, please continue to press hard and fast with regulatory reform including creating the vitally important Consumer Financial Protection Agency.  We will not reiterate the stakes as we are sure that you are very much aware.

Remember the Credit Cardholders Bill of Rights that was passed a few months ago?  Well look for some changes to be implemented by your credit card companies starting today.  The bill mandates the following rules must go into effect today:

• You have a right to reject a rate increase
• You have 5 years to repay your balance at the current rate.  In other words, credit card companies cannot raise the rate on your current balance for five years.
• Companies must provide you 45-day advance notice before a rate increase
• Bills must be mailed 21 days before they are due

The major changes with the most protections under the Credit Cardholders Bill of Rights do not go into effect until February. 

Some of the down sides of the changes is that your credit card company may now start charging you an annual fee to recoup the price gouging profits that it will no longer receive.  In addition, the credit card industry has threatened that it will be harder for consumers to get a card, it will raise interest rates, and risky borrowers may be out of luck. 

Further, the credit card industry has made blocking the creation of the Consumer Financial Protection Agency its “number 1 priority.”  The agency will protect consumers from abusive, deceptive, unfair, and harmful practices by the financial industry.  Throughout this month (August) industry insiders are on the hill and lobbying lawmakers in a major push to prevent the creation of the consumer protection agency.  The credit industry has accumulated millions and millions of dollars to instigate its campaign against increased regulation that it fears will result in a reduction of profits.  Don’t let them get away with it.