Who’s Protecting Consumer Finances?

“This isn’t liberal or conservative.” – Elizabeth Warren.

Why would six former presidents (two of whom are deceased) take the trouble to visit President Obama? And who arranged this “Presidential Reunion”? For the answer, visit Funny or Die, the popular comedy Web site.

Of course, consumer protection is really no laughing matter, especially if you or someone you know is paying 18% interest on credit cards or has seen their mortgage payments balloon to unpayable (i.e. forecloseable) amounts.

For a detailed, intelligent 20 minute discussion of the issue, click on the Charlie Rose interview with Elizabeth Warren, the Chair of the Congressional Oversight Panel.

Here is a summary of some of her points.

According to Professor Warren, of the Harvard Law School, no federal agency is looking out for the consumer when it comes to such matters as credit cards, mortgages, check overdraft fees, and car loans. She has been pushing for the formation of a new consumer agency for much of the last year, and it is currently the subject of Congressional negotiations.

Professor Warren believes that the current regulatory framework is “inefficient, and either ignored and ineffective, or captured by the large financial institutions. A fractured, bloated, overly fat — I just don’t know what else to say — regulatory system is what we’ve got now. It works very well for the large financial institutions because it means no effective regulation.”

Regarding the proposed Consumer Protection Agency, she says “You’ve got to have an agency that’s ultimately independent, whether it’s located within the Fed, within Treasury, the Department of Agriculture, or whether it sits in its own separate place. The key is whether or not it is functionally independent — does it write its own rules, does it enforce those rules, and does it have access to a budget that’s independent of the folks who want to smother it.”

“This is an agency that just makes sense. It’s about readable credit cards, it’s about readable mortgages, it’s about prices that are transparent. This isn’t liberal or conservative. The American Enterprise Institute, very well respected, very conservative, has put model two-page mortgage agreements, two page check overdraft agreements on its Web site. … A consumer agency makes sense to get the market working again. So this isn’t a division of ideology. This is about bank lobbyists. This is about people who are paid professionally to stop this agency, their words, “to kill this agency” so they can protect the revenues for the Wall Street banks.”

By the way, Professor Warren also has some very interesting observations on how the government mishandled the financial crisis and what to do about the “too big to fail” financial institutions. So do watch the entire video, if you have the time.

And for a not-so-serious article on the same subject you can learn how the Presidential Reunion video was made possible by reading the New York Times story.

While not directly involved in the making of the video, Ms. Warren did comment on the video’s premise. “Why wouldn’t our past presidents agree on shrinking government by transforming a bunch of bloated, ineffective and unaccountable consumer-protection bureaucracies into a smaller, streamlined, and effective agency? And why wouldn’t they all support two-page credit card agreements?”


Pardon me for getting political (an arena I try very hard to stay out of), but one indication of whether Congress can pass any meaningful reform on anything is whether it can withstand intense lobbying against consumer finance protection. Today Senator Christopher Dodd of Connecticut is scheduled to release his proposed legislation. We will see if his solution, which covers many more things than just consumer protection, will be acceptable to enough Senators and eventually to the American people.

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Roger Streit, CFP®

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