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.
June 24, 2009; 9:45 AM ET
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