Consumer protection in financial products

Consumers need protection from risky, confusing financial products

In response to the serious crisis in our financial markets, Congress is working on reforms to ensure adequate regulation of banks and other financial institutions. However, this reform effort will be worthless if it doesn’t include protections for the millions of Americans who rely on financial products such as mortgages, credit cards and other kinds of loans. These products, and the clear unwillingness of our regulators to regulate them, pose a great danger to the financial security of American families and to our economy as a whole.

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Therefore, I support the creation of the Consumer Financial Protection Agency (CFPA), which would protect Americans from risky, complicated financial products like “pick-a-payment” mortgages, unfair and costly mortgage terms like prepayment penalties, and hidden and predatory credit card charges like “over-the-limit” fees, just to name a few.

Furthermore, the agency would regulate businesses that have traditionally escaped federal regulation. Take mortgage servicers, for example. These entities have day-to-day contact with homeowners. They have the power to prevent foreclosures by modifying loans. Although the federal government has provided servicers financial incentives, many are still clinging to a business model that encourages foreclosure over modification. By regulating mortgage servicers, this agency could improve mortgage servicing by making servicers work for homeowners instead of against them.

Clearly, it is very difficult for consumers to make informed decisions and pick the credit card or other financial product that is right for them when essential information describing restrictions, teaser rates and penalties is buried in page after page of fine print.  Even Elizabeth WarrenElizabeth WarrenObama makes 0K for speech at A&E event: report Van Jones: Obama should do ‘poverty tour’ Warren reads middle school students' letters on climate change MORE, a distinguished professor who teaches contract law at Harvard, considers this confusing.    Reducing the confusion and risk — and increasing transparency — will help American families, restore confidence and help our economy.

American consumers are protected from harmful drugs and foods by the Food and Drug Administration. Children, in particular, are protected from harmful toys, cribs, and car seats by the Consumer Product Safety Commission. Most Americans are grateful for the regulation and oversight of inexpensive household products. It’s only common sense, then, to have an agency to protect consumers from the potential harm of expensive, complex financial products with large upfront costs and negative long-term costs as well.

Of course, the banking industry opposes this agency. The CFPA would limit the industry’s ability to profit from the confusing and deceptive products that they have engineered specifically to take advantage of consumers. This is why the industry is launching a full-scale assault against regulation. They are targeting members of Congress to oppose this agency, and, I am disappointed to say, are making some progress. With the help of conservative allies in Congress, high-priced industry lobbyists are claiming that regulation is unnecessary or even would hurt consumers by denying us choices. This argument simply doesn’t pass muster.

Now is the time for appropriate regulation and enforcement of safeguards against risky financial products. With 6,500 families losing their homes to foreclosure each day, and excessive credit card fees and interest rates driving consumers further into debt, we simply can’t wait any longer to give consumers the protections that they need.

Consumers are starting to organize, seeking this basic protection against powerful banks.  As consumer advocates and representatives of America’s families, we must stand with them.

Congress should establish the Consumer Financial Protection Agency in order to truly protect average Americans from dangerous financial products. The banks that caused this financial crisis by preying on consumers have already been bailed out. It’s up to us in Congress to end the abuse of consumers once and for all.



Waters is a member of the House Financial Services Committee.