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The failure of the current bank regulators to stop predatory lending and other reckless Wall Street practices is widely recognized as a primary cause of the 2008 mortgage meltdown that triggered the current recession. For years leading up to the 2008 financial collapse, federal bank regulators ignored numerous warnings of increasingly predatory mortgage practices, credit card tricks and unfair overdraft policies used by banks. The banks were earning billions from “gotcha” practices. Incredibly, bank regulators actively encouraged this behavior, arguing it was profitable and kept banks safe.
No regulator cared about its other job: enforcing consumer laws. Some regulators even actively worked to prevent states from carrying it out. Worse, firms were able to pick and choose among regulators, encouraging a “race to the regulatory bottom.” That is the system that failed to protect us.
After the economic collapse, Congress bailed out the banks in 2008. Only in 2010 did Congress finally pass the historic Dodd-Frank Wall Street Reform and Consumer Protection Act to protect consumers from a repeat of this nightmare.
A central component of this new consumer law was the creation of the Consumer Financial Protection Bureau, an agency whose one and only job is to protect and look out for consumers.
This month, the CFPB takes over as the nation’s chief consumer bank regulator. It will supervise mortgages, credit cards and other bank loans, including overdraft fees. Unfortunately, because no director has been confirmed, the bureau will not have its full authority to protect consumers in the financial marketplace. Without a director, America’s newest consumer cops won’t have the political presence and clout needed in regulatory battles with Congress, other bank regulators and the banks themselves.
Meanwhile, Wall Street banks and their allies in Congress are actively working to torpedo these reforms. Goldman Sachs, Financial Services Roundtable, American Bankers Association, Visa Inc. and Citigroup Inc. spent a combined $20.7 million on lobbying in the first half of 2010 in an effort to prevent Dodd-Frank’s passage. The same five groups have spent a staggering $27.3 million since its passage, lobbying to weaken parts of the bill such as the CFPB, or simply do away with the bill altogether.
On July 21, the day the new agency opened its door for business, the House voted to gut the CFPB’s independence and delay its start in an effort led by Wisconsin Congressman Sean Duffy. Make no mistake: Members who supported HR 1315, the so-called “Consumer Financial Protection Safety and Soundness Improvement Act,” voted to protect Wall Street banks from oversight at the expense of their own constituents — ordinary consumers.
Earlier this year, 44 Republican senators wrote the president that they would confirm no nominee to be CFPB director unless the bureau’s powers were first gutted.
Last week the president nominated former Ohio Attorney General Richard Cordray as the CFPB’s first director. He has a well-balanced record as an attorney general who worked to protect the people of Ohio. In the last two years, he recovered over $2 billion from Wall Street to repay Ohio’s wrongly foreclosed consumers, the state’s looted pension funds, and its cities and counties that lost money once guaranteed by Wall Street. We believe Cordray is qualified to protect American consumers as the first director of the CFPB.
It is hard to imagine that senators who publicly oppose any nominee, regardless of qualifications, care for consumers harmed by the recession. They can only be backing the Wall Street interests that have so strongly opposed effective oversight.
In many ways, this is the same, straightforward battle between ordinary Americans and powerful Wall Street banks that we have been fighting for years. We now need more than ever a strong consumer watchdog advocate looking out for average Americans and the future of our children.
It’s certainly good news for consumers that there’s a new consumer enforcement bureau with only one job: looking out for consumers of all ages, especially our elderly. It will be better news when it has a sheriff. Rather than doing the bidding of Wall Street contributors, congressional leaders need to stand up for consumers and confirm Cordray.
Bruce Speight is WISPIRG director, and A.J. “Nino” Amato is president of the Coalition of Wisconsin Aging Groups.
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