Senate Must Act on Banking Reform

06/15/2010 05:12 am ET | Updated May 25, 2011

Mortgages with skyrocketing interest rates and other hidden costs. Unregulated financial markets slipping through the cracks--the list of reasons for our economic crisis is long and infuriating.
But one question remains: Has Congress learned any lessons from the financial meltdown? We're about to find out.

Last month, Senator Dodd proposed a package of financial reforms that includes the creation of the Consumer Financial Protection Bureau (CFPB). Similar legislation has already passed out of the House of Representatives. This new financial watchdog is meant to protect consumers from the kind of lending abuses that hurt millions of homebuyers and ultimately sparked the deepest economic downturn since the Depression.

Imagine if the Consumer Financial Protection Bureau had existed before this crisis and if the new watchdog had cracked down on subprime and nontraditional mortgage practices before they became so widespread. The pain of this crisis might have been avoided. Instead, the current banking regulators sat back until far too late.

That's why we need a strong and wholly independent financial watchdog that has the power to protect consumers against tricky financial products and practices, without having its decisions delayed or second guessed by the banking regulators. Senators must stand up and make sure that the CFPB can take action without such interference.

We need a watchdog whose mission is to look out for consumers and to protect the interests of Main Street against the unfair practices of the banks and Wall Street. This would allow innovation to flourish, increase competition and lead consumers to make better, well informed financial choices. At the same time, it would help prevent such practices that hide the true cost of mortgages from borrowers, or hide the real cost of credit with confusing fine print in credit contracts. An independent financial watchdog could focus on ensuring that financial products were once and for all presented in clear, understandable language that would enable consumers to do some comparison shopping.

Unfortunately, the big banks and Wall Street firms that brought us to the verge of financial collapse are swarming Capitol Hill to stop this idea. And, they will try to amend Senator Dodd's bill to weaken it as much as they can so that the CFPB's actions, for example, would have to be approved by the very banking regulators who didn't protect consumers in the first place. They've enjoyed their freedom to offer risky products, and they've been allowed to pass off this risk to all consumers. They don't want to see it come to an end. They're armed with a battery of high-paid lobbyists to make sure this proposal dies or that it is watered down.

Restoring consumer protection must be a cornerstone in reforming our financial system and getting the economy back on track. We've learned the hard way that Americans suffer when banks and other lenders call the shots on financial regulation. It is time to change the game to put the needs of American consumers' front and center.