After several months of debate in Congress and the media, the proposal to create a Consumer Financial Protection Agency (CFPA) has recently taken some important steps toward becoming a reality. Earlier this week, Senate Banking Committee Chairman Chris Dodd included the CFPA in legislation to restructure the nation's financial regulatory system. This comes after the House Financial Services Committee approved a bill last month that would create the agency and which the full House is expected to vote on it in early December. The proposal has also received some support from important voices in the private sector and field of economics. Mark Zandi, chief economist at Moody's Economy.com wrote a piece this past Sunday in the Philadelphia Inquirer endorsing the creation of the agency.
President Obama originally called for the creation of a CFPA earlier this year as a major piece of a bold plan to revamp the regulation of the nation's financial system. The new agency would be charged with investigating consumer complaints, making rules, and enforcing regulations for a variety of financial products including mortgages, credit cards and bank accounts. The CFPA would also conduct research and promote financial education. New America's, Ellen Seidman, testified on the President's proposal before the House Financial Services Committee back in June. Click here to see her detailed analysis of the CFPA.
The proposal has, however, proved to be very controversial. Banks and mortgage lenders have come out in opposition to the creation of the agency-arguing that it would stifle innovation, increase costs and limit access to financial products. Consumer advocates argue that there needs to be one agency whose main priority is consumer protection for several reasons. Currently, this responsibility is spread across several different government agencies depending on the financial product or provider in question. This has resulted in regulatory gaps and consumer protection has also often taken a backseat in place of other financial regulatory priorities. Furthermore, there are several types of financial products and financial service providers that are under regulated or not regulated at all under the current system. However, some members of Congress and current financial regulators have expressed concerns about the efficacy of separating the consumer protection responsibilities that some federal agencies currently have from their other financial regulatory duties, such evaluating the safety and soundness of financial institutions.
One thing that is clear though, is that the current system of consumer financial protection is inadequate. The examples are numerous, including the millions of predatory mortgage options that were allowed to be sold and that eventually contributed to the current Great Recession. Industry practices regarding credit cards and bank account overdraft fees have also recently come under the regulatory spotlight. The debate over how best to protect consumers in the financial services sector should continue, and the bill introduced by Senator Chris Dodd and the one that passed the House Financial Services Committee are both good starts. The interests of consumer advocates should be balanced with legitimate industry concerns, but overall consumer protection must be strengthened, expanded and a clear regulatory priority if the both American families and the economy at large are to get back to and remain on stable economic ground.