Idea of Consumer Financial Products Watchdog Gaining Traction

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Elizabeth Warren, head of the Congressional Oversight Panel for the TARP, has been a vocal advocate for the need for a financial product safety commission. The notion, which seemed quixotic a few weeks ago, is getting consideration by the Obama Administration.

Given how industry friendly Team Obama’s financial services industry measures have been, it runs the risk of (correctly) being seen as captured. The abuses on the consumer side have been so egregious that reining them in is a clear winner with the public, and serves to divert attention from how accommodative other measures have been.

Nevertheless, a measure like this, properly done, would represent real progress.

From the Washington Post:

The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds…

Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said.

Sources, who spoke on condition of anonymity because discussions are ongoing, said talks have begun with industry officials, lawmakers and other financial experts about the proposal, which would require legislation…

The proposal could centralize enforcement of existing laws and create a vehicle for imposing tougher rules.

The idea is likely to face significant opposition from industry groups, which argue that stricter regulation limits the availability of financial products to consumers.

It could also trigger a massive regulatory turf war. Banking regulators and agencies such as the Securities and Exchange Commission, which regulates mutual funds, could stand to lose powers, personnel and funding. Those agencies are likely to argue they are positioned to protect consumers because they oversee the financial firms directly and have long experience writing and enforcing rules governing financial products….

Such a commission could be very powerful. A number of sweeping federal laws already offer broad protection to consumers of financial products, but those laws have been lightly enforced in recent years.

The Department of Housing and Urban Development, for example, has clear authority to crack down on companies that charge excessive closing costs on mortgage loans, but repeatedly postponed planned reforms in the face of industry opposition.

Warren’s proposal initially found little support in Washington, but the mood has shifted dramatically with the onset of the financial crisis and the election of a Democratic administration.

In March, Sen. Richard J. Durbin (D-Ill.) introduced legislation to create a commission like the one that Warren had described. The legislation is co-sponsored by Sen. Charles E. Schumer (D-N.Y.) and Sen. Edward M. Kennedy (D-Ma.). The White House’s support would greatly improve its chances of passing…

“The Federal Reserve was supposed to do this, but they were asleep at the switch,” Schumer said at the time.

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  1. Doc Holiday

    What a bunch of crap!

    Re: “regulatory commission that would have broad authority to protect consumer”

    This is very much like a homeowner association getting new board members and playing musical chairs and talking about new rules, new ideas and Obamaism “change” — it’s all talk, it’s all smoke and mirrors, it’s all a nice dog and pony show, it’s a nice pea and shell game and it’s nice window dressing, but all it really is, is more confusion layered on top of chaos!

    These idiots in Washington have no clue what they are doing, so like, heck, maybe a new committee, or a blue ribbon panel or gosh, what about a new commision and gads, why not some new rules …. since The Patriot Act failed, Sarbanes Oxley failed, The Glass-Steagall Act failed and obviously Congress has failed, just as The SEC, FTC, DOJ, FBI, Treasury, FOMC, FASB, FDIC and crap, FDA, FTC ……. we have a failed society but why not have a new committee that spends taxpayer revenue — it’s unlimited yah know, and come to think about it, TARP is a fairly good example of group-thinking and friggn failure, versus having accountability and enforcement of existing regulation that should have 80% of the wall street scumbag pirates in prison …….but nooooo, we need a committee to ponder the possibility of fraudulent accounting and a committee to ponder if other committees are regulating ….. this is sickening!

  2. Andrew Bissell

    Is there some actual solution to the problem of regulatory capture? Because if not, it’s pretty much a stake-through-the-heart to the idea that more regulation is the cure-all to the ills caused by financial bubbles.

    The only solution I can think of is to have a skeptical, educated populace electing the government. But of course, such a populace is the one least in need of regulators to watch out its interests.

  3. bb

    and what about the idea of public, and free of charge, lunatic asylums?

    explaining to a financial illiterate the harms of an option ARM is just as helpful as puting a sticker ‘do not swallow’ on a toy for a toddler. either is incomprehensible to the user.

  4. marsha donner

    ACCORDING to Bloomberg news tonight…the US is considering boxing out the SEC in favor of more power to the fed.

    the internal talks have iced out Bair and SEC head and others.

    apparently NO consideration is being given to separating banks brokerages insurance..and the idea of ‘too big to fail’is not only being accepted as good and necessary but the new regime is being built around the idea that they will late forever.
    and more power to a private opaque institution that flaunts congressional/media/public scrutiny (the FED) is beyond belief.
    Using a crisis to push through increased privitization of oversight again. we have seen this movie before.
    Hopefully there will be enough outrage to this idea (likely being floated for response) is needed immediately and strongly.
    Michael (

  5. marsha donner

    Doc Holiday….they are not incompetent..they are doing exactly what they intend to do by taking advantage of this crisis to push more privitization of oversight.
    same ole same ole. will they get away with it? the circle of those involved inside the administration (i voted for) seems to be getting smaller all the time and others getting worn down by the day. last man standing will be the FED for sure. won’t that be grand, to count on them to set monitary policy, do oversight, be lender of first and last resort…ohmygod.

  6. russell1200

    The big issue IMO is the how much preempting of State rights will occur. The State AG offices have been far more diligent in this area than the Feds.

  7. X

    @bb: I think that is a wonderful idea and I would like to check in as soon as possible please.

    Regulation is worthless as long as capture is the case. As long as capture is suspected confidence is impossible. If the captured gov is somehow able to restore confidence in the short term it will be quite a blow when it all comes apart and people realize that capture was never fixed. Wake me up when the civil unrest starts. It looks like everything is going to be quite predictable and dispiriting until then.

  8. DownSouth

    Andrew Bissell said…”Is there some actual solution to the problem of regulatory capture?”

    Well actually, there is. It’s called democracy.

    Given our current situation, will democracy triumph? I don’t know.

    But even if democracy fails, this has nothing to say about the effectiveness of regulation, nor does it prove your libertarian, laissez-faire philosophy. As Richard Rorty wrote in “The Priority of Democracy to Philosophy:”

    Both Jefferson and Dewey described America as an “experiment.” If the experiment fails, our descendants may learn something important. But they will not learn a philosophical truth, any more than they will learn a religious one. They will simply get some hints about what to watch out for when setting up their next experiment.

  9. Doc Holiday

    Here is a great example of our American Journey and the result of fraudulent regulation enforcement.

    The Time Machine… After the nuclear bombs have dropped, causing a volcanic eruption, he travels to the far future where he ends up in the world of the Eloi and the Morlocks, cannibalistic mutations. After meeting Weena and falling in love with her, George helps to defeat the Morlocks and then returns to his own time. After saying goodbye to his friends, he returns to the far future.

    > Mental Note: Yvette Mimieux is a hot Goddess who represents future hope and The Morlocks represent The Bush & Obama Administrations, wall street and all that other crap that destroys society.

    Also read the script from H.G. Wells:

    You were safe inside your house,
    yet came out to warn me.

    The characteristic which
    distinguished man from animals…

    …was the spirit of self-sacrifice.

    And you have that quality.

    So do all your people.
    It just needs someone to reawaken it.

  10. CathyG

    A consumer protection agency for financial products sounds fine – but what happens the next time we get an administration like Bush’s?

    An executive branch ideologically committed to the notion that government is bad, incompetant and needs to be kept out of the business of business will just take chainsaws once again to whatever regulations and regulatory agencies are created. And once again, the corporate predators will be loosed on society.

    How does the creation of any agency keep THAT from happening again?

  11. run75441

    Restricting the size of late fees, overdraft fees, closing fees, and miscellaneous fees besides capping credit card and mortgage interest rates and getting back to 30 day terms on payments would go a long way towards resolving many issues for consumers. No need for a new agency and $billions to fund it to do this.

  12. Johan

    “Such a commission could be very powerful. A number of sweeping federal laws already offer broad protection to consumers of financial products, but those laws have been lightly enforced in recent years.”

    Lack of enforcement is the problem. Another commission won’t help unless laws are enforced.

  13. Andrew Bissell

    But even if democracy fails, this has nothing to say about the effectiveness of regulation, nor does it prove your libertarian, laissez-faire philosophy.What it will prove is that individuals must take responsibility for watching out for their own interests, because democracies will always relax (and historically, *have* always relaxed) regulations at exactly the moment they are most needed. Trying to find some kind of brilliant, impenetrable, eternally effective super-regulatory regime is exactly the kind of grasping at centralized, top-down solutions that Nassim Taleb rails against as hopelessly ineffective.

    This is sort of driving at the fundamental differences between a republic and a democracy, and the cultural and political rot we have suffered the more we move from the former to the latter, egged on in part by postmodernists like Rorty.

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