The proposed new independent Consumer Financial Protection Agency is facing a difficult time in the United States Senate. The hope for an independent, stand alone oversight consumer protection agency seems to be fighting a losing battle. Senate Banking Committee chair, Christopher Dodd, himself formerly embroiled in compromising relationships with bad-acting mortgage crisis players, seems to be considering two proposals for the new agency: either (1) housing a new agency in the Federal Reserve or (2) situating the agency within the Treasury Department. By compromising an independent agency by making it beholden to Fed or Treasury officials is, arguably better than nothing, stripping a new oversight agency of independence will certainly emasculate it from providing clear consumer protection in an unfettered way.
Specifically, there is little reason to believe that a new Consumer Protection Agency under the supervision of the Treasury or Fed will regulate banks and their businesses in any serious, reform oriented way. The current Treasury Secretary Timothy Geithner has already proven to be under-enthusiastic about any serious financial reform as he has cautioned against clamping down on executive pay and has resisted the Volcker’s rule proposed regulation against proprietary trading. Further, with Washington’s current trend of appointing Wall Street insiders as Treasury Secretary the implication is clear that that any Consumer Protection Agency will be hamstrung from its origination.
This following example of credit card contracts provides evidence that a Consumer Financial Protection Agency is needed. In 1980, the average credit card contract was 1 page long. Today, it is often more than 30 pages long. Now with 30 page contracts, complicated ARMs and other sub-prime mortgages, banks should be required to make profits on honest lending practices, not complicated agreements that make profits available to them based on unforeseen fees or penalties.
Will Congress have the will to create an independent Consumer Financial Protection Agency?