A recent Bloomberg poll revealed what appeared to be weak public support for an independent Consumer Financial Protection Agency (CFPA). The poll suggested that consumers preferred that existing bank regulators--and not a new, independent agency--should wield new consumer protection powers. For months, consumer leaders and the Obama Administration have advocated for a stand-alone agency that would have consumer protection as its primary focus. But Senator Dodd's plan houses consumer protection powers in the Federal Reserve, subject to oversight by other bank regulators. Bank lobbyists and their Republican supporters in the Senate--if they have to accept strengthened consumer protection at all--prefer this: that such powers not reside in an independent agency. The Bloomberg poll would seem to strengthen the hand of those against independent consumer protection. A deeper look into the poll reveals its flaws, and undercuts the argument that the public is opposed to an independent agency, however.
Earlier this week, Bloomberg released the results of a poll that purported to reflect public sentiment on financial reform. According to the raw data from the poll, the largest portion of respondents, 31%, thought that the economy was the most important issue facing the nation right now, beating out health care, which came in nine percentage points lower, at 22%. Participants were also asked the following: "Do you think banks have taken enough action to change what they do to avoid a future meltdown, have taken too little action, or do you think they've gone too far and made changes that will be harmful down the road?" Nearly 60% of respondents answered that banks "have taken too little action." So far so good for financial reform. But then the pollsters asked a question about a CFPA, and the results (especially given these previous answers) were surprising. According to Bloomberg: "Almost seven out of 10 people surveyed support using current bank regulators for consumer protection, backing positions held by the financial industry and Republicans over President Barack Obama's proposal to establish an independent agency." A deeper look at the poll question, though, might help to explain these results. Indeed, the pollsters asked the following:
Congress is considering a proposal to increase oversight of consumer credit, including mortgages and credit cards. To best serve consumers, do you think this should be a new, separate agency, with complete independence and its own authority to make rules for consumer credit, or would it be better to enhance the existing system to make sure bank regulators do more to protect consumers?
The question seems to pit the creation of an independent agency against "mak[ing] sure bank regulators do more" for consumers. Given the way the question was framed, the results, then, were predictable. Why didn't they just ask the respondents: "Would you prefer more bureaucracy for the sake of bureaucracy, or smarter regulations?"
The following is an equally legitimate poll question:
Should bank regulators currently in place, whose primary responsibility is to regulate banks, be given additional powers to look out for the interests of consumers, when those regulators had such powers before yet failed to look out for those consumer interests in the lead up to the financial crisis OR should a new agency be created that has as its sole and primary focus protecting the interests of consumers?
Admittedly, no honest pollster would ever ask such a question. But doesn't this question capture the essence of what the debate over a CFPA should be? Should the same bank regulators who failed to stop the subprime tsunami have enhanced authority to look out for consumers in the future, or should an agency whose primary focus is consumer protection have such power? That's the question that should be at the heart of the debate over the CFPA. And in answering this question, one should consider the many examples of regulatory failure in the lead up to the crisis; here are just a few.
First, in 1994, the Federal Reserve was given the authority to rein in subprime lending by Congress, but the Fed, under the leadership of Alan Greenspan, refused to do so. Second, when state regulators attempted to step in to do what the federal government would not, two of the primary bank regulators housed in the federal government, the Office of Thrift Supervision and the Office of the Comptroller of the Currency, said that those state efforts were pre-empted by federal law and power, and states could not oversee federally regulated banks that acted within those states' borders. Third, when consumer advocates sought to close the gaping loopholes in the Community Reinvestment Act that permitted stand-alone mortgage companies to misbehave beyond that law's reach, regulators stopped such reform efforts in their tracks. Finally, SEC, Bernie Madoff: enough said.
So that's the real question: do consumers want the same regulators who failed so miserably in preventing the present financial crisis to have the main responsibility for preventing abuses of consumers from things like payday loans, oppressive mortgages, outrageous credit card practices and bank overdraft fees? Few farmers would choose the sheep over the hound to guard the henhouse.
A poll conducted in July of last year by the Consumer Federation of America revealed that consumers have a different sentiment toward the issue than the results of the Bloomberg poll would suggest. Indeed, in that poll, consumers were asked the following:
President Obama and others have proposed the creation of a new federal agency to protect consumers who purchase banking and other financial services. Would you support or oppose the creation of such an agency?
In response, 28% of those polled answered that they "strongly support" such an effort, while another 29% said that they "somewhat support" the creation of such an agency, leading to a total of 57% offering at least some support, with only 39% opposing such an idea. These days, 57% support is a landslide. And rightly so. It's a simple proposition: put the success of consumer protection in the hands of those who have clearly failed consumers in the past, or select new leaders and create a new agency with new powers from scratch. The choice, it would seem, is an easy one.