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Consumer-Protection Showdown

It’s a showdown on Capitol Hill today as advocates of greater consumer protection vis-a-vis the finance industry go head-to-head with representatives of that industry.

In the blue corner before the House Financial Services Committee, we have Rep. Bill Delahunt (D), who has spearheaded the relevant legislation, followed closely by Elizabeth Warren – appearing here as a Harvard professor and a longtime proponent of better protection for consumers of financial products. But of course she is influential in part because her current day job is head of TARP oversight.

In the red corner we have, among other people, Edward Yingling on behalf of the American Bankers Association. He is in favor of helping consumers, naturally, but does not want to this with a separate agency focused on their issues. Given recent experience with the distraction of regulators and their inability to curtail any egregious behavior, it will be interesting to see how his arguments play with the committee.

Yingling and other industry representatives think that consumers can be adequately protected within some version of the existing regulatory structure. Warren will likely point out in some detail, as she did in her book, the extent to which consumers are routinely taken advantage of in their financial decisions. It is hard to imagine that some small tweak to the existing regulatory structure will address this long-standing pattern of bad behavior by the financial sector.

The administration’s proposal for a new agency presumes that “nudging” consumers toward better decisions is a good idea – the work by Cass Sunstein (the new White House regulation “czar”) and Richard Thaler on this issue appears to have carried the day within the executive branch. But given the way the financial sector has behaved – and continues to argue – will nudging really be enough?

Perhaps the committee will be drawn towards an agency that will be more definitely tougher on the financial sector? This will not necessarily reduce the probability of future crises, but it should at least make sure that consumers do not bear the brunt of what goes wrong down the road.

--Simon Johnson

By Terri Rupar  |  June 24, 2009; 9:45 AM ET
Categories:  Regulation  
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Next: Investigating Predatory Lending: Reverse Redlining


It's great to see the banks using taxpayer bailout money to lobby Congress.

Congress forbade the Legal Services Corporation from lobbying if it received taxpayer funds. So why did the banks get a special exemption?

Posted by: Garak | June 24, 2009 11:19 AM | Report abuse

Future new regulation is all fine and dandy. But who's going to address the good news to the already homeless.

Posted by: steveherb | June 24, 2009 1:19 PM | Report abuse

What worries me is 1) that the agencies that are already supposed to be protecting us don't have a good record of doing so, yet we pay for them regardless in our taxes and 2) if something is being offered that is not understood by the customer, that customer should not be buying it.

Much of the trouble many are in now is due to their brushing aside all the "details" and signing up without knowing what it was they were signing. Show me a legal contract on the web for some software and I do it too! All the protection in the world can't stop that practice.

True, the salesmen were egging people on to buy crazy mortgages but nobody in the world should know not to trust salesmen more than Americans, the champion consumers of all time. There is no protection against mania and that what the housing boom was.

To say if I don't know what it is I won't buy it is always the best protection and is a guideline that comes free of charge. To guarantee that people will not act foolishly is a fools errand. And the thing that we most need to guard against is the natural inclination of every politician to "do something!"

Posted by: Clif | June 24, 2009 4:19 PM | Report abuse

The problem we face is to determine who is really committed to protect the consumer. It appears that too much of Washington is bought and paid for and thus no real protection will come from any federal agency regardless of their charter.

Posted by: Patchie | June 24, 2009 7:13 PM | Report abuse

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