Consumer protection agency must be independent

The financial crisis that erupted in 2008 damaged our entire economy, eliminated trillions of dollars of wealth for America’s families, harmed businesses, led to higher unemployment and caused foreclosures. Stronger, more vigorous regulation of banks and other financial institutions would have prevented their irresponsible and reckless behavior and is necessary to prevent another market meltdown.

Congress continues to take important steps to reform the regulatory system for financial institutions, and we must get it right. An essential part of this reform is an independent Consumer Financial Protection Agency — as provided for in the Wall Street Reform and Consumer Protection Act passed by the House — with the authority to protect Americans against predatory, abusive and unfair practices.

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“If men were angels, no government would be necessary,” wrote our nation’s founders. They understood the need to provide safeguards against abuses of power. The greed and excess displayed on Wall Street for far too long will only be reined in with effective government regulation. Indeed, even since the financial crisis, banks, credit card issuers and other financial institutions have shown no inclination to change their behavior. If anything, they are accelerating their efforts to gouge customers and squeeze hardworking Americans for as much as possible while they still can, knowing that tougher regulation and enforcement are coming.

The economy is showing signs of recovery, but many Americans are understandably anxious about their future. While bank bailouts were necessary, they certainly were not popular, and what people especially resent is that banks receiving taxpayer assistance continued to pay bonuses to executives while treating customers poorly.

Banks have been able to borrow money at low interest rates but turned around and raised rates for customers, as much as tripling them. Families who want to refinance or modify their mortgages are denied or ignored. Credit card rates are too high, and cardholders are being hit with steep fees in addition. ABC News reports that the nation’s middle-class families spent more than $100 billion on credit card penalties, fees and interest in the last year alone.

As if the foreclosure crisis were not bad enough, many desperate homeowners are further victimized by scam artists from businesses that openly advertise on TV and the Internet, charge high upfront fees and provide either no assistance or at best services available from nonprofit, government-certified counselors.

Elizabeth Warren, who teaches contract law at Harvard, finds the information that credit card issuers provide customers impossible to understand and filled with “tricks and traps” in the fine print. As she points out, the Food and Drug Administration tests medications for their effectiveness and protects us from dangerous drugs, and the Consumer Products Safety Commission issues warnings and recalls products that are a threat like lead-tainted toys. Who, though, protects Americans from harmful financial products?

Currently at least seven federal agencies share oversight of the financial system, but consumer protection is not the priority for any of them, and we have seen the results of their neglect: consumers have been taken advantage of and led to financial ruin. Millions of American homeowners were steered into subprime mortgages by brokers seeking high commissions, although these borrowers qualified for lower-interest loans. Black and Latino communities like those I represent in California were particularly targeted by predatory lenders and consequently neighborhoods in such communities have been devastated by foreclosures.

Empowering a single agency, the Consumer Financial Protection Agency, with the mission and authority to protect consumers is necessary, and to be effective, the CFPA must be independent.

Under the leadership of Chairman Barney Frank (D-Mass.), I worked with other members of the House Financial Services Committee to put together a reform package that included a strong, independent CFPA, and the House passed this legislation (H.R. 4173) last year.

The Senate Banking Committee voted this week to send financial regulatory reform legislation to the full Senate. Chairman Chris Dodd (D-Conn.) has drafted legislation that includes many important provisions such as enhanced regulation of over-the-counter derivatives and increased standards to end excessive executive compensation and curb systemic risk.

However, I am concerned that the Senate bill fails to establish a standalone, independent CFPA, instead creating a Bureau of Consumer Financial Protection that would be housed within the Federal Reserve.

Although the proposed Bureau would have rulemaking and enforcement authority, federal regulators would have veto power over it. The Bureau therefore, unlike the CFPA, lacks the independence and rigor necessary to reform Wall Street and prevent another financial crisis.

The big banks and Wall Street firms are aggressively resisting our efforts to rein them in and stop their abusive behavior. They want to continue business as usual, and they are spending millions and millions on lobbyists and campaign contributions to protect their billions and billions in profits. Unfortunately, but not surprisingly, they have found Republicans in Congress more than willing to do their bidding. The same Party of No that has tried to block reform to improve healthcare for American families and small businesses is once again siding with the wealthy corporations. We must not let them prevent commonsense consumer financial protection by weakening the CFPA.

Waters is a member of the House Financial Services Committee.