Look out! I can see them coming, marching down the halls of Congress with campaign checks in their back pockets, cutting "I'll scratch your back, if you'll scratch mine" deals, and hiring expensive PR firms to spin their message.
As soon as the lobbyists representing the industry that brought us the worst economic crisis since the Great Depression heard the word "consumer safety" they knew it was time to fire up those blackberries and get organized.
And so, it has begun. And, for all we know, the knife may have already been planted firmly in the back of the Consumer Financial Protection Agency, announced by President Obama recently to protect consumers from the uncanny ability of people to prey on other people's hopes and desires in order to make money.
The dream of nearly every American is to own a home. Bankers used to bear a professional duty to ensure a loan was affordable to the borrower, and they would only lend to those who were qualified for a loan. So what happened?
It's not that Americans suddenly became more inclined to own a home, but rather the ethics of the industry changed; the industry no longer cared about the long-term financial security of the consumer, as long as they could take their cut on the front end. In the words of Nobel Prize-winning economist Joseph Stiglitz, the financial system discovered there was money at the bottom of the wealth pyramid, and it did everything it could to ensure it did not remain there. And when a trusted loan officer or broker or real estate agent told us it was possible to own that home, many Americans believed them!
Never mind that the interest rate is going to jump so high in two years that you won't be able to afford the mortgage. Never mind that a prepayment penalty fee essentially will prevent you from refinancing.
This is why we need a regulator looking after consumers. The regulator will say "no" on behalf of consumers by not allowing the defective financial product on the market to begin with.
Naturally the financial lobbyists don't like this; they don't like being told, "no", so the American Bankers Association, the Mortgage Bankers of America Association, the Financial Services Roundtable and others have geared up to tear down the President's consumer agency.
Suddenly, they love their old regulators, the ones they often complained about in the past. They want to keep things the way they are now. It's easy to understand why.
The Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency often acted as if their primary duty was to the banks, not to the taxpayer. The failure of the Federal Reserve to regulate the industry was the most significant of all the agencies. They had the power to regulate unfair and deceptive practices, and with that power wipe away much of the reckless and irresponsible lending that led to the subprime crisis, but they chose not to do so for years. Countless warnings from consumer advocates, like my organization, the National Community Reinvestment Coalition, fell on deaf years, starting as early as 2000.
That year, NCRC wrote to the Office of Thrift Supervision, calling on the regulator to "revise its regulations....to help prevent lending practices that are solely intended to deceive and dispossess" borrowers. Needless to say, those concerns were not acted on. In recent days some of the same regulators who were asleep at the switch have come out saying a new regulator is not needed, and that existing regulators have the capability to handle the job.
After three decades of work in consumer advocacy, I have never witnessed this capability. Banking regulators have proven to be highly susceptible to 'regulatory capture,' where they become unduly influenced by the industry they are in charge of regulating. So an abiding principle of regulatory reform should be to expand transparency and accountability, allowing the media and the public to invigorate the regulatory process. Improving the data collected about lending practices and expanding opportunities for public hearings on the practices of financial institutions would be strong steps in this direction. Strengthening the Community Reinvestment Act through passage of HR 1479, the Community Reinvestment Modernization Act of 2009, would do just that.
The Administration should continue to make passing strong anti-predatory lending legislation a priority. Before setting up resolution authorities and strengthening agency responsibility for systemic risk, Congress must first ensure that the practices that in the aggregate created systemic risk are not allowed to continue. Failure to do so will allow reckless and irresponsible lending to continue to undermine the viability of the financial system.
The Administration also needs to aggressively enforce existing fair lending and fair housing laws, such as the Community Reinvestment Act, Federal Fair Housing Act, Truth In Lending Act, Equal Credit Opportunity Act and others. Had this been done, a significant amount of damage to consumers and the economy could have been avoided.
Instead, previous Administrations and Members of Congress listened to the banks and the conservatives who said we didn't need regulations. But, look what it got us. We've tried it their way. It's time to legislate and regulate as if people mattered, not just Wall Street.
Most importantly, this Administration and Congress should stand up to the financial lobby and not allow the industry, who has fed from the public trough like no other industry, kill the one single regulatory reform that protects the people who have suffered the most from what has surely been the biggest financial scandal in our nation's history.