Toxic financial products aren't dangerous just to those of us who borrow and invest. They can, and nearly did, blow up the whole economy.
Yet bankers, lenders and more than a few politicians are trying to convince us that sensible regulation of consumer financial products is somehow a bad idea.
Ask yourself who is better qualified to judge risk: the person with a 620 credit score and a $10,000 credit limit or the financial conglomerate with thousands of extravagantly paid financial analysts, sophisticated scoring models and smooth-talking marketing departments that decided they could make money off him?
The latter are the people who engineered a system that entraps consumers and sets them up to fail. And they could win this battle, too. But you can fight back by taking 60 seconds to e-mail your lawmakers and let them know you won't be sold out again.
The financial industry is fighting the creation of a Consumer Financial Protection Agency that would be able to effectively regulate, among other things:
- Home loans.
- Credit cards.
- Payday loans.
- Stored-value cards such as gift cards.
- Collection agencies.
- Credit bureaus.
- Financial advisory services.
The agency could write user-safety guidelines for financial products, ban deceptive practices and possibly rid us of those god-awful binding-arbitration clauses that force you to sign away your rights every time you open a bank account or apply for a credit card.
The financial powers that be, however, don't just dislike the idea of a powerful consumer advocate at the federal level. They loathe it.
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Lobbyists have already managed to carve car dealers away from the proposed agency's jurisdiction -- because car dealerships wouldn't deceive anybody, would they? -- and you can expect more attempts to gut or kill the agency entirely in weeks to come.Financial-services companies would much prefer we stay with the current system, which is so ridiculous, arcane and fragmented that true consumer protection is the exception rather than the rule.
Video: Consumer Financial Protection Agency pros and cons
If you need just one small example, try to find out which regulator is in charge of each of the five bank branches nearest your home. If you need some help, know that the Federal Reserve regulates state-chartered banks that are part of the Federal Reserve System and that the Federal Deposit Insurance Corp. regulates state-chartered banks that aren't part of the Federal Reserve System.
The Office of Thrift Supervision monitors federal savings and loans and savings banks, while the Office of the Comptroller of the Currency oversees banks with "National" or "N.A." in their names -- Wells Fargo and Chase, for example. (Wells Fargo includes the "N.A." in tiny type at the bottom of its home page, while Chase doesn't bother.)
I've been covering banking off and on for more than 20 years, and I can still have a tough time figuring out to whom a reader can complain when his bank has screwed him over.
Jurisdiction for consumer financial products is scattered over an array of federal agencies, none of which concentrates primarily on consumers and all of which delegate it to a backwater area of regulatory responsibility.
As one group of consumer law professors put it:
"Our review of the regulatory approaches at the existing agencies, whose jurisdiction includes but does not focus on consumer financial products, leads us to conclude that on balance they place a higher value on protecting the interest of financial product vendors who promote complex debt instruments using aggressive sales practices, than they do on protecting the interests of consumers in transparent, safe, and fair financial products."
Continued: We all pay while they get rich
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