Amidst the flurry of news surrounding Obama’s Nobel Prize win on Friday, the President made a significant yet under-reported speech on his plans to create a new centralized Consumer Financial Protection Agency. This proposal – one of a number of regulatory reforms currently moving through Congress – would consolidate the overcomplicated and ineffectual regulatory system currently in place. As the President pointed out:
“[There is] no single agency whose sole job it is to stand up for…the American consumer and for responsible banks and financial institutions.”
However, the proposal is meeting with harsh opposition from the powerful banking lobby (shocking!), and substantial changes are being made in the House Financial Services Committee which considerably water down the bill. Obama addressed this issue on Friday, calling out the lobbyists and attempting to remind the American people how important it is that we take decisive action to reform our financial system.
So, in case you’ve forgotten the events of the past year, (or you’ve never used a credit card, or you use gold coins as your primary currency), here are a few key reasons why we need this new regulatory body:
1. Remember the housing bubble? It ‘popped’ and plunged the entire globe into an economic downward spiral. Bankers have done their best to place blame on mortgage brokers and over-zealous home-buyers. However, according to New York Times business columnist Joe Nocera: “Bankers were every bit as complicit in pushing mortgages on customers who lacked the means to pay them back.” After all, they were the ones creating and packaging the subprime mortgages in the first place.
2. Overdraft fees have increased by 35 percent in the past two years alone, according to the Center for Responsible Lending. Last year, banks collected a total of $24 billion from as many as 51 million Americans.
3. The current regulatory system incentives ripping off consumers in order to balance the books. The primary mission of regulatory bodies today is to ensure the safety and soundness of the banking system. Nocera points out:
“When a bank decides to raise a customer’s credit card interest rate to 35 percent to make up for losses elsewhere in the credit card portfolio, that believe it or not, is a good thing from the perspective of safety and soundness. Even though it is a terrible thing for consumers.”
Posted by Mary Tharin