Your Hearing: Financial Consumer Protection
One idea that got a lot of press this week was a Financial Product Safety Commission, an idea widely associated with Elizabeth Warren, chair of the TARP Oversight Commission and a professor at Harvard Law School.
On Tuesday, esdewey submitted this comment:
This commission is a healthy idea - but to be really effective, it needs to be able to act as a separate entity from the Fed/FDIC/OCC/OTS/NCUA policymakers.
As a mid-level compliance officer who has been in the industry for over 10 years, it's clear that what happens in a regulatory compliance exam is that examiners who find consumer compliance violations cannot simply issue findings - they have to get clearance from supervisors and policymakers in Washington. Findings with real cost implications are negotiated, often out of existence, because the policymakers are captured by the banks claims that enforcement will have a safety and soundness impact.
A separate Commission, reporting to Congress, that did not make policy, but simply enforced the policy decisions of the banking agencies from the executive branch, would provide a more meaningful check and balance against regulatory capture.
I agree that regulatory capture is something that has to be worried about when it comes to any regulatory body. The problem may be particularly acute when it comes to financial products, because the harms they cause are more complicated than with toasters (Warren's favorite example). Toasters may be complicated on the inside, but you can test them to see how often they catch fire; with financial products, it's harder to predict which ones will blow up for which people. This could make it harder for regulators to stand up to pressure from financial institutions, applied through their congressmen.
On Tuesday, mrdocuman echoed the feelings of several readers in this comment on credit card issuers:
The banks are once again blowing smoke at Congress and the public. They are not just raising interest rates for those who miss a payment or are late on a payment. They are raising them on those who always pay on time and they are doing it in anticipation of this new law. They cook up all kinds of reasons (i.e. "too much usage", "too many other credit cares", etc. etc.) but it boils down to a greedy money grab and its about time Congress put a stop to it.
From what I've read about the credit card bill, I'm also worried that it restrains certain specific practices but does little to rein in the proven creativity of the credit card issuers in coming up with new ways to charge you money. This is one reason why a Financial Product Safety Commission could be a useful backstop -- it would have broad authority to review financial products for safety, not just to make sure that banks are following specific rules set by Congress.
Thanks for your comments, and please keep them coming.
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