The Senate finance reform effort

Neglect and inaction - that's the only apt description of federal bank regulators' track record over the last decade. Consumer safeguards in the financial services arena are in theory overseen mainly by three agencies, the Office of Thrift Supervision, the Office of the Comptroller of the Currency and the Federal Reserve Board. In practice the three have stood virtually idle as abusive, reckless practices infected nearly every facet of financial services, ultimately costing taxpayers trillions of dollars in lost wealth.

Now two months past the anniversary of the costliest financial bailout in U.S. history, we still lack the regulatory overhaul that would bring commonsense oversight to the financial services industry and, in the process, protect consumers, taxpayers and the economy from a repeat of the current fiasco. That's why the Senate needs to quickly pass the Consumer Financial Protection Agency legislation now before it, just as the House did last month. Such an agency would streamline the existing authority now scattered - and largely ignored - among the three agencies.

 
The evidence of current regulators' neglect and inaction is everywhere, from  widespread foreclosures that sparked the current recession by devastating millions of Americans and surrounding neighborhoods, to unfair bank overdraft fees and credit card practices riddled with tricks and traps. In every case lenders designed - and regulators allowed them to design - products that produced big fees and fat executive bonuses by catching customers in unending debt. Banking regulators were well aware of lending abuses, but remained passive.
 
In the end, of course, much of the revenue from these products proved to be an illusion, with taxpayers having to step in to make up the very large shortfall. The country simply cannot afford to allow the three agencies that allowed this to happen to remain in charge. Consider this example. Despite a 2005 report by the OCC showing bank lending standards had seriously deteriorated, the agencies took two years to take action to curb the subprime mortgage lending that sparked the market meltdown and subsequent bailout. By the time the agencies finally got around to insisting that lenders consider a borrower's ability to repay a loan before approving it, it was July 2007, when the subprime market was essentially dead, its damage already done.
 
And this. Congress told the Federal Reserve Board in 1994 - 15 years ago - to establish rules banning bad, high-risk mortgage lending practices, but the FRB didn't put any in place until this fall, five years too late to prevent what's happened. 
 
Or this. The OCC has actively obstructed efforts to stop bad banking practices.  While many state attorneys general have pursued unfair and deceptive lending practices, the OCC went to court in 2001 to try to prevent states from taking action against such abuses by national banks. And the OCC didn't exercise its authority to stop unfair and deceptive practices  for 25 years. Despite receiving hundreds of thousands of complaints and inquiries between 2000 and 2008, the OCC took just a dozen public enforcement actions during this period for unfair and deceptive practices relating to home mortgages, credit cards and other consumer loans.

The proposed Consumer Financial Protection Agency now before Congress would be free of the conflicts of interest and competing priorities that ultimately allowed significant drains in wealth. And it would restore states' ability to take action when circumstances in their own back yard require it.
 
It all adds up to economic sense. Sound, fair ground rules allow companies to compete on the value of their products, not on how many snares they can set for customers. Creating this level playing field would mean that individual Americans, who account for nearly $7 out of every $10 spent in the economy, could redirect the money financial institutions unfairly siphon off to more productive uses, like buyingbeneficial goods and services and saving for the future. 

For more information about the center and it's position on financial reform, please visit www.responsiblelending.org/cfpa