Congress Must Act to Protect Consumers and Prevent Risky Lending

03/24/2010 05:12 am ET | Updated May 25, 2011

As Secretary of State in North Carolina, one of my duties is overseeing investment securities in the state. We are responsible for protecting investors by investigating people who offer securities and the securities themselves. Unfortunately, in recent years, we have been busier than I would like to be.

The uptick in the reports of fraud and scams corresponds with the deregulation of the financial industry, beginning in the late 1990s. While many of these problems have come from Madoff-style Ponzi schemes orchestrated by scam artists, others have come from ostensibly reputable Wall Street firms misleading investors and misrepresenting products. The past year, we have had to reach settlements with large national banks to recover millions of dollars for North Carolina consumers.

The reckless behavior of these firms is indicative of the atmosphere that created the current financial crisis. The Wall Street bankers emphasized short-term profits with little regard for the financial wellbeing the investors and less regard for the truth. Unfortunately, after a year of multi-billion dollar bailouts nationally and crackdowns locally, those bankers are playing by the same rules.

After receiving bailout funds, most Wall Street banks invested them for quick profits to pay off the debt instead of lending to businesses to help the overall economy. Now, Wall Streeter's are patting themselves on the back with record bonuses to let us taxpayers know how smart they are.

In this environment, Congress should be clamoring to enact common sense regulations that protect consumers and prevent the risky lending that brought the country to brink of economic collapse. However, the same forces that put so much energy into derailing healthcare reform are taking aim at financial reform. But now, it's the financial lobby instead of the insurance lobby.

It's time for Washington to get some backbone and stand up for consumers, not powerful financial interests.

First, Congress needs to protect consumers with a Consumer Financial Protection Agency. Currently, banks and financial institutions set the rules and parameters for financial products, often leaving buyers at the mercy of fine print and legal loopholes that benefit the companies. The new agency should add simplicity and transparency to financial transactions because consumers deserve to know the risks of purchasing a product.

Second, we need to recoup the money we gave banks to keep them afloat and discourage them from taking such risks again. A tax on the mega-banks would serve as a fee to cover their implicit designation of "too big to fail." Revenue from the fee should go toward paying down the deficit, much of which has been accumulated because to the current financial situation.

Which brings us to the third point of reform: No bank should be "too big to fail." The designation gives the institutions a government safety net that, over time, may well encourage risky behavior. Re-enacting the consumer protections that were stripped away with the repeal of the Depression Era Glass-Steagall Act in 1999 would be a step in the right direction. The Act separated commercial and investment banks and insurance companies, and its repeal has been cited as one of the causes of current financial crisis.

The financial industry will resist these and any other reforms with expensive ad campaigns and scare tactics. Congress needs show some leadership and do what's best for the country not what's best for the banks. They need to make my job a little easier by preventing frauds and scams through common sense regulations instead of leaving messes for my office to clean up.

Elaine Marshall was first elected Secretary of State in 1996. In the last years and a half, her office has recovered over $340 million from fraudulent transactions. She is currently a candidate for U. S. Senate.