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CFPA in the News

admin — Wed, 03 Mar 2010 12:56:08 +0000

Synopsis of recent news on the CFPA:

Washington Post, March 2, 2010
Dodd wants Democratic support for consumer-protection regulator at Fed

The chairman of the Senate banking committee is seeking Democratic support for a Republican proposal to house a new consumer-protection regulator inside the Federal Reserve, a compromise that could clear the way for bipartisan legislation on financial reform, according to sources familiar with the negotiations.

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LA Times, March 2, 2010
Dodd moves to scale back Consumer Financial Protection Agency plan

In an attempt to lure the Republican votes needed to get a sweeping overhaul through the Senate, the Banking Committee chief is circulating a plan for a less powerful Bureau of Financial Protection.

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New York Times, March 2, 2010
Dodd Proposes Giving Fed the Task of Consumer Protection

In an effort to secure Republican support for an overhaul of financial regulations, the chairman of the Senate Banking Committee on Monday proposed giving the Federal Reserve responsibility for protecting consumers from abusive and deceptive financial products.

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Business Week, March 2, 2010
Dodd, Corker Said to Near Deal on Giving Consumer Power to Fed

Senate Banking Committee Chairman Christopher Dodd and Republican Senator Bob Corker are nearing a deal to create a consumer authority at the Federal Reserve, according to two Republican Senate aides.

The plan is for a division at the central bank that would be led by an administration appointee and have the authority to write rules, said one of the aides, who declined to be identified because negotiations are private.

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Washington Post, February 19, 2010
BILL WOULD BROADEN TREASURY SECRETARY'S POWER

The chairman of the Senate banking committee is aiming to release a new wide-ranging bill next week that would overhaul financial regulation, including a provision that could for the first time give the Treasury secretary a direct role in the oversight of individual financial companies, according to aides.

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Politico, February 19, 2010
DODD AND SHELBY NEAR REG REFORM SHOWDOWN

The Senate Banking Committee will face dueling financial reform proposals when the panel finally convenes for formal consideration of the bill.

Committee Chairman Chris Dodd (D-Conn.) plans to unveil a new draft bill next week and has set the first week in March as the target date for committee review.

CNNMoney.com, February 15, 2010
COUNTDOWN TO CREDIT CARD CHANGES

A bunch of perks are coming cardholders' way.

First off, issuers will no longer be able to retroactively hike your credit-card interest rate, making it much easier for you to get out of debt.

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Wall Street Journal, February 9, 2010

PROMINENT CFPA SUPPORTERS TURN UP THE VOLUME

Several prominent policy makers rallied Tuesday to support the creation of an independent Consumer Financial Protection Agency, as anticipation mounts over the details of legislation that Senate Banking Committee Chairman Christopher Dodd (D., Conn.) is drafting to overhaul financial regulation.

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Huffington Post, February 9, 2010

DODD TO PUSH FOR INDEPENDENT CFPA

Senate Banking Committee Chairman Christopher Dodd (D-Conn.), who's shepherding financial reform legislation through the chamber, will release the latest version of his bill later this month, perhaps as early as this week.

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LA Times, February 2, 2010:
BANK OF AMERICA WILL NOT OPPOSE THE CFPA
The banking industry is adamantly opposed to the Obama administration’s proposal for a Consumer Financial Protection Agency.

But in its fight to derail the idea, the industry won’t get help from one of its biggest names: Bank of America Corp. Under new Chief Executive Brian Moynihan, who took over Jan. 1, BofA has decided that it won’t formally oppose creation of the watchdog agency, Bloomberg News reports:

Moynihan informed White House and U.S. Treasury Department officials of the company’s stance last month, bank spokesman James Mahoney said in an interview. While not endorsing the agency, the bank agrees with the “policy direction,” Mahoney said.

“We’ve made it clear to various organizations of which we are part that we aren’t lobbying against the agency,” Mahoney said. The bank also isn’t promoting the concept, leaving the decision to Congress and U.S. agencies, he said.

Moynihan, 50, has been trying to repair the megabank’s image in Washington after the stormy tenure of previous CEO Ken Lewis.

Washington Post, January 31, 2010
THE CFPA: HOW A CRUSADE TO PROTECT CONSUMERS LOST ITS STEAM

At a time when the country is deeply divided over the proper role of government, what is Capitol Hill's appetite for a new, independent agency with broad power to police the financial industry and protect consumers from the risky lending practices that contributed so much to the financial crash of 2008?

Not as hearty as the Obama administration had hoped last year when it turned a Harvard Law professor's crusade for a Consumer Financial Protection Agency into a major element of its regulatory reform initiative.

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New York Times, Jan 20, 2010
OBAMA PRESSING FOR PROTECTIONS AGAINST LENDERS

President Obama on Tuesday stepped into the middle of a fierce lobbying battle by reinforcing his support for an independent agency to protect consumers against lending abuses that contributed to the financial crisis. The president’s move also signaled a tougher line and a more direct role as Congress weighs an overhaul of banking regulation.
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Reuter's, January 18, 2010
WATCHDOG'S FATE IN SENATE KEY TO FINANCIAL REFORM

The tag on U.S. financial regulation reform may as well say "Made on Wall Street" if bank lobbyists manage to gut the Obama administration's proposed consumer watchdog agency, said Elizabeth Warren on Monday.

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The Wall Street Journal, Jan 15, 2010
CONSUMER PROTECTION AGENCY IN DOUBT

Senate Banking Committee Chairman Christopher Dodd is considering scrapping the idea of creating a Consumer Financial Protection Agency, people familiar with the matter said, an initiative at the heart of the White House's proposal to revamp financial-sector regulations.

The Connecticut Democrat, who announced this month that he wouldn't run for re-election this year, has discussed the possibility of abandoning the push for a new agency during negotiations with key Senate Republicans as a way to secure a bipartisan deal on the legislation, these people said.

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CFPA Straight Talk

admin — Sat, 30 Jan 2010 00:54:42 +0000

Professor Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School -- where she teaches contract law, bankruptcy, and commercial law -- and has devoted much of the past three decades to studying the economics of middle class families. In the wake of the 2008-9 financial crisis, she became the chair of the Congressional Oversight Panel created to investigate the U.S. banking bailout (formally known as the Troubled Assets Relief Program). In that role, she has provided a critical check on the U.S. Department of the Treasury and has been a leading advocate for accountability and transparency.

Her latest two books, The Two-Income Trap and All Your Worth, were both on national best seller lists. The National Law Journal has repeatedly named Professor Warren as one of the Fifty Most Influential Women Attorneys in America, and SmartMoney Magazine recently designated her one of the SmartMoney 30 for 2008.

"When you buy a toaster, if it explodes in your face there's a law that says your
toasters need to be safe. But when you get a credit card, or you get a mortgage,
there's no law on the books that says if that explodes in your face financially, somehow
you're going to be protected." - President Barack Obama, 3/19/2009

There are thousands of different credit products. The quality of products varies dramatically, from subprime mortgages and credit cards loaded with tricks and traps to reasonably-priced, sensible products that help borrowers navigate through difficult times or to build wealth. With increased complexity and fine print, however, most customers cannot distinguish between good products and bad, which means that billion-dollar advertising budgets often push customers toward worse products.

It is time to repair this market, both to permit a level playing field among big-budget and small-budget financial institutions and to provide the same basic safety standards for home mortgages, auto loans, and other financial products that are guaranteed for a bar of soap or a tube of lipstick. Such basic standards not only would have prevented the subprime crisis and ensuing global financial meltdown, but they can also prevent similar crises in the future.

I. The Problem: Bad Products and Weak Regulation

A. The Spread of Dangerous and Misleading Financial Products

There is overwhelming evidence that many mortgage, credit card, and other financial products are deliberately designed to confuse and trap customers in higher cost products that can cause long-term indebtedness, foreclosure, and bankruptcy. Dangerous and misleading financial products not only put individual consumers at risk, but put the entire economy in danger by increasing risk throughout the financial system.

• Mortgages - Fannie Mae estimates that 50% of those who were sold high-cost subprime mortgages would have qualified for much less expensive prime-rate loans. HUD found that consumers spend approximately $55 billion in closing costs they don’t fully understand, concluding that “buying a home is too complicated, confusing, and costly.” At the heart of the current crisis is the fact that millions of deceptive mortgages that were sold to homeowners over the last 10 years then got packaged and resold as mortgage backed securities and collateralized debt obligations. Warnings about the danger went unheeded, and the economic crisis began as the mortgages exploded.

• Credit Cards - The Federal Reserve found that many consumers did not understand key credit card terms, such as: the ability of the lender to change the “fixed rate” APR; what might trigger the rate to change; what fees were associated with the product; how the balance is calculated; or the cost of convenience checks. In the early 1980s, the typical credit card contract was one page long; at present, it has grown to more than 30 pages.

• Tax-Refund-Anticipation Loans - Approximately 50% of tax-refund-anticipation borrowers were not aware of the fees charged by the lenders. Other types of predatory loans similarly cloud terms and conditions, prevent consumers from comparing products, and create competitive pressures on even those institutions committed to offering clean products.

B. The Current Regulatory Structure is Badly Fractured, Creating Inefficiencies and Gaps

A loose amalgam of common law, statutory prohibitions, and regulatory-agency oversight, the current structure is incapable of providing effective protection for consumers and fair competition for lenders.

• Among subprime mortgage issuers, 23% were regulated under laws governing thrifts and banks; 25% for holding companies; and 52% had no federal supervision whatsoever.

• Current rule-writing authority for nearly 20 existing laws is spread out among at least seven agencies. Some authority is exclusive, some joint, some concurrent. Regulatory burdens are duplicative, without being effective.

• Many financial institutions can choose their regulators. If one regulatory agency pushes for reform, large financial institutions can simply re-incorporate as a different kind of entity in order to sidestep the new rules. In fact, an institution may decide to evade a federal regulator altogether by housing its operations in the states and forgoing a federal charter.

• The primary charter of regulatory bodies such as the Federal Reserve Board, the OCC, and the OTS is to protect banks rather than consumers. These regulators have failed to exercise their powers to provide even minimal protection for consumers.

• Regulations are often so complex that financial institutions need multiple compliance officers to manage routine products. Large institutions can spread those costs among millions of borrowers, but smaller institutions cannot and are unfairly disadvantaged.

• Congress moves much more slowly than the financial services industry. The last major financial regulation was enacted in the early 1980s, at a time when most of today’s dangerous financial products had not yet been invented. Lenders can change a product with a few keystrokes on a computer, which means a nimble, responsive rulemaking agency is needed.

II. The Solution: CFPA

A. What CFPA Would Do

• CFPA would help our country out of the current crisis and put our economy on the road to financial stability by halting the spread of deceptive and dangerous products.

• CFPA would establish meaningful guidelines for consumer disclosure, collecting and reporting data, and reviewing new products for safety.

• CFPA would stop the race to the bottom in the development of financial products that benefits financial institutions with the biggest advertising budgets while leaving smaller institutions to choose between declining revenues and lowering their own lending standards.

• CFPA would support short, plain-vanilla, safe-harbor contracts and products to reduce compliance burdens for lenders that seek to offer straight-forward, customer-friendly loans.

• CFPA would limit the damage caused by bad products not only on families, but also on third parties. With fewer bad products in the marketplace, responsible lenders will suffer less collateral damage resulting from consumer bankruptcy, foreclosures, and defaults.

• CFPA would review consumer financial products based on the product, not the type of lending institution. This approach would eliminate regulatory gaps and contradictions and minimize regulatory arbitrage that benefits “too big to fail” financial institutions while small institutions are shut down.

• CFPA would evaluate products to ensure a fair and safe free marketplace, making it easier for consumers to make informed choices. Ultimately, this would increase consumer confidence, build family stability, and reduce the risks of a future global banking meltdown.

B. What CFPA Would Not Do

• CFPA would NOT discourage innovation.

o In fact, CFPA will enhance innovation by preventing the deceptive and dangerous financial products from pushing truly innovative products out of the market. It is the same as product safety: toaster manufacturers cannot undercut competitors by eliminating insulation to prevent fires, and lenders should not be able to boost revenues through tricks and traps.

• CFPA would NOT paternalistically undermine consumer choice.

o Like the Consumer Products Safety Commission, the CFPA is not designed to protect people from themselves and their own bad decisions. Instead, it is designed to put consumers in a position to make choices for themselves by streamlining regulations, making disclosures smarter, and making financial products easier to understand and compare. With better tools to understand products, consumers can make their own choices—and be held to them.

• CFPA would NOT fix prices or stamp out products targeted at low-income consumers.

o Low income consumers are often targeted for the highest-priced, most deceptive products. Because their resources are often constrained, the impact can be devastating. Clear products that explain their costs will permit everyone—especially low-income families—to make better financial choices. But lenders would still set costs, and risk-based pricing would live on.

• CFPA would NOT increase total regulatory burdens.

o By encouraging the development of plain-vanilla, safe harbor contract forms and by reducing duplicative—and ineffective—disclosures, the CFPA can save time and resources for small institutions using traditional, safe products. Institutions could continue to offer complicated or risky products, so long as the risks and costs are disclosed in terms that can be read quickly and that can be clearly understood.
III. Safety Commissions are a Proven, Effective Approach.

• No agency is perfect, but consider how different life would be without a Consumer Product Safety Commission that improved toy safety and infant car seats and a Food and Drug Administration that made sure drugs were safe, effective, and correctly labeled.

• Safety commissions are also cost effective. Standards for three products alone – cigarette lighters, cribs, and baby walkers – save annually more than $2 billion, which is more than the Consumer Product Safety Commission’s total cumulative budget over the past 35+ years. It is similarly worth remembering that the closure of just IndyMac cost the FDIC insurance fund more than $9 billion.

The CFPA: Myths and Facts

admin — Fri, 29 Jan 2010 00:55:48 +0000

The greedy and reckless behavior of big banks on Wall Street, credit card companies, mortgage lenders and irresponsible consumers just caused a financial crisis that cost Americans millions of lost jobs, and billions in tax-payer funded bailouts and lost retirement savings.

Today, after raking in our tax dollars in bailout money, the big banks are back to business as usual, spending hundreds of millions to pay lobbyists and advertising agencies to fight against reforms that would protect us from their abuses in the future.

Some of the myths and fear tactics being promoted by their ad agencies, and the facts:

MYTH: The CFPA will cost jobs.

FACT: This from the same people who have just cost us more jobs and created the worst economic mess since the Great Depression.

Financial reform will stop Wall Street abuses, protect jobs and lead to a stronger, more stable economy that creates new jobs.

MYTH: The CFPA creates more regulation and bureaucracy.

FACT: America's financial system had been governed by regulations for decades, until the 1980s, when those regulations were weakened. This allowed Wall Street and the big banks to rig the rules to benefit themselves, not ordinary Americans.

The recent financial crisis was a direct result.

The CFPA puts back limits on the reckless Wall Street behavior to prevent future financial crises, and reins in pay for CEOs and executives whose companies receive government assistance. It protects consumers by cracking down on the abuses and deceptive practices of credit card companies and predatory lenders.

MYTH: The CFPA will hurt small businesses.

FACT: The recent financial crisis significantly reduced small businesses access to credit, forcing many to close and many more to lay-off workers. This was created by unethical business practices, not by regulation.

The CFPA will create a more stable and dependable flow of credit for small business, allowing them to expand and create jobs.

MYTH: The CFPA will hurt community banks.

FACT: The CFPA will close the loopholes that big banks have exploited, strengthen protections for community banks and establish the level playing field that they deserve.

MYTH: If you are losing sleep over the economy, financial reform is going to make you even more anxious.

FACT: Financial reform will rein in the greedy and reckless behavior of big banks by cracking down on abuses and deceptive practices of credit card companies. It will set a limit on pay for CEOs and executives whose companies receive government assistance.

It will require big banks to keep a certain percentage of their profits in reserve to prevent them from failing and needing a bailout to survive, strengthen fraud protection and close the loopholes that have allowed big banks to operate without any oversight over their risky deals.

It will protect consumers from intentionally deceptive products and confusing contracts.

Who exactly is losing sleep over financial reform? Not consumers or small businesses.

What is the CFPA?

admin — Mon, 25 Jan 2010 09:38:05 +0000

CFPA stands for Consumer Financial Protection Agency. And here’s why we need it.

Today, the credit and lending industry standards are set by organizations that govern the business of banking.

These organizations are concerned with the banking institutions themselves, safe and sound business practices. Safe and sound refers to the business of doing business. It does not refer to what is safe and sound for the consumer.

There is currently no organization protecting or advocating for the consumer.

The existing system allows large banks to create subsidiaries or other businesses that are not subject to the same federal regulations as those large banks. These “other businesses” are referred to as “non-banks”. Yet, their businesses still rely on issuing some form of credit, in the way of a card, a loan or a mortgage. These forms of credit are also called “financial products.”

There is currently no federal organization regulating non-bank financial products, which can include credit cards and mortgages.

Actually, there is currently no federal organization regulating financial products at all. The seven - yes seven - government bodies that currently regulate the banking industry regulate the institutions. Not the products they rely on.

The CFPA will consolidate regulations. This means it will eliminate waste, in time, resources and energy, from the bloated and redundant and loophole-riddled status quo of having seven different government agencies regulate the same sector.

The CFPA will also simplify credit and lending industry regulations, for the consumer. By simplification, we mean creating standards, drastically reducing the fine print in contracts, and eliminating the possibility for tricks and traps.

Those opposed to protecting the consumer should remember that if there’s no consumer, there’s no business.

The CFPA will exist to ensure consumers are protected, so business can go on - just, not as usual.

Full Text of the CFPA

admin — Sat, 23 Jan 2010 22:42:14 +0000

Read the full text of the bill, or just get your questions answered from the actual document:

click here for full text

Watch Elizabeth Warren

admin — Sat, 23 Jan 2010 22:37:24 +0000

Straight talk from Harvard Economist Elizabeth Warren, giving you the real details on the CFPA and what it means to your finances: