The banking industry renewed its extortion threat against Congress today: If you create an independent Consumer Financial Protection Agency that is not beholden to the banking industry, we'll make American consumers pay.
That's precisely the threat contained in a recently released set of "talking points" from the American Financial Services Association, which calls itself "the national trade association for the consumer credit industry."
Entitled, "The CFPA: Why It Could Do More Harm Than Good," the document's first argument is, "Consumers will pay more for financial products and services at a time when they can least afford it." Because the agency's costs will be covered in part through fees paid by financial institutions themselves, the association says that bankers will just wrap those costs into the fees they charge for credit cards and loan products.
But that ignores arguments made by the administration as far back as July that the consumer agency could actually reduce regulatory costs by helping to streamline regulatory responsibilities. The line of attack is also a distraction from what's really driving voter anger against the banking industry and the demand for reform: such items as the estimated $31 billion in overdraft charges levied by banks against consumers this year, often without customers realizing that their $5 debit card purchase would result in a $35 bank fee rather than the expected denial because of insufficient funds. That's not a regulatory cost. That's a naked profit grab.
Actions by the Federal Reserve and Congress, as well as public pressure, is forcing some banks to back off. But, faced with new rules in 2010 that will constrain the ability of banks to fleece consumers, the last thing the banksters want is a cop to tell them that they can't foist onto the public new financial products they can't understand that contain trap doors the public can't see.
So the ASFA proposes as its "better way" a suggestion to "empower"—whatever that means—something called the Federal Financial Institutions Examination Council. It's a behind-the-scenes agency primarily tasked with creating "uniform principles, standards, and report forms for the federal examination of financial institutions." The key point is that its five members are drawn from the top echelons of the Federal Reserve board of governors, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and a representative from a state banking regulatory agency.
It's convenient for the financial services industry to want to park consumer protection at an agency that has had no mandate or expertise in consumer advocacy, comprised of people largely drawn from the banking industry itself or from executives whose allegiances would be to the banking industry when its interests collide with those of consumers. It's the foxes telling us to trust them with the henhouse. It's laughable, as Americans for Financial Reform say in their statement today, but it's also dead serious.
It’s laughable to think that the American Financial Services Association has any idea of the best way to protect consumers when they falsely believe that it’s only the housing market that brought us to this economic precipice. How can they be a credible voice for consumers when so many of the companies they represent are the ones responsible for putting us on this economic precipice?
Today AFSA will tell you all the horrors the Consumer Financial Protection Agency will create, but all they’re really concerned about is their companies’ bottom line. What they won’t tell is the truth about what the CFPA will do to protect Americans’ wallets.
The agency will be a strong watchdog, protecting consumers from the worst abuses of the financial industry. The CFPA will empower consumers by making contracts, such as credit card agreements, short and comprehensible and, in the process, making products easier to compare.
The goal of the Consumer Financial Protection Agency isn’t to put banks out of business or add regulation. It's to guarantee safety, encourage innovation of safer products and reduce federal regulatory layers by carving out existing regulators and moving them to a single fair and accountable agency. So the real question AFSA needs to answer is why they continue to oppose common sense safeguards that would benefit all Americans.
Here's why. The business model that much of the consumer credit industry used to rack up its profits until the start of the Wall Street crash—cheap-looking credit, profligately issued and laden with "gotcha" fees and deceptive come-ons—is broken. (That model is the subject of a documentary that debuts November 24 on the PBS documentary show "Frontline.") Fairness, straightforwardness and transparency would make for more honest financial products and more satisfied consumers in the long run, but it may mean a little more work for the industry, and it will mean that they are not the only ones calling the shots. So instead of working with Congress to fashion an agency that will stand up for consumers (and would work with other bank regulators to safeguard the soundness of financial institutions), the credit industry instead points a financial gun at consumers' wallets, threatening "tighter credit conditions"; "fewer, less flexible options," and higher costs if a true consumer watchdog is in place.
Why that's different from what we have now, with banks that received taxpayer bailouts using those funds to pad their balance sheets rather than lending to jump-start the economy—a point underscored by Shahien Nasiripour's reporting in The Huffington Post—is a mystery. Nonetheless, consumers are right to face down this extortion threat, as well as the millions of dollars the financial services industry is spending on lobbying, and demand that Congress pass a robust Consumer Financial Protection Agency.