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Should Bank CEOs Direct Employees to Scuttle Consumer Protection Agency?

It's no secret that the American Bankers Association wants to torpedo the proposed Consumer Financial Protection Agency. Now the group also wants bank leaders to dragoon employees into opposing it. Says the ABA, the industry's leading trade organization, in an August 21 entry in the "What's News" section of its Web site (the item has since been taken down):

The administration will make passage of legislation to create a Consumer Financial Protection Agency a priority when Congress returns from its August recess. For that reason, ABA continues to urge bank CEOs to ask their employees to send letters to members of Congress opposing the creation of the consumer agency.
With Congress re-opening for business in September, the fight over the CFPA is intensifying. The ABA of course isn't alone in pressing lawmakers to pull the plug on the CFPA. Other industry lobbyists seeking to scuttle the plan are the Independent Community Bankers Association, Mortgage Bankers Association, Consumer Bankers Association, American Financial Services Association and Financial Services Roundtable.

Joining them is a motley collection of interests: the American Institute of Certified Public Accountants, American Resort Development Association, Building Owners and Managers Association, Direct Marketing Association, Interactive Advertising Bureau, National Association of Home Builders, National Automobile Dealers Association, The National Business Coalition on E-Commerce and Privacy, Property Casualty Insurers Association of America and Rodeo Clown Mutual Assurance Society.

OK, the last one's fictional, but you get the picture. Such groups are reportedly considering running TV ads modeled on the "Harry and Louise" spots used by insurance companies to sink health care reform in the 1990s.

The CFPA is a response to the mortgage crisis, when lending standards all but disappeared. The agency would supervise bank loans, credit cards and other financial products, setting standards for mortgages and enforcing new laws aimed at protecting consumers from unfair or deceptive practices.

Beyond reining in some of the worst excesses of the housing crisis, there are good reasons for a CFPA. First, and most obviously, the existing bank regulators not merely failed to safeguard consumers, they willfully ignored the mounting dangers.

For example, the Federal Reserve has done nothing to stop banks from imposing exorbitant overdraft fees, which continue to climb during the recession. The Office of Thrift Supervision, which banks actively sought out as a regulator because of its lax supervision, has preempted state laws in allowing usurious bank payday loans on prepaid cards. The Office of the Comptroller of the Currency barred states from enforcing their own fair lending laws, a position recently struck down by the Supreme Court. All three agencies have failed to ensure that financial institutions provide accurate data to credit reporting agencies.

It's a dismal record, and one that long predates the subprime bubble. Meanwhile, there are several layers of irony to financial institutions trying to smother the CFPA.

The most obvious is that banks, which in recent years developed all manner of risky loans while chucking their lending standards out the window, contend the proposed agency will limit their ability to market all manner of loans. For another, many of the banks opposed to the idea of an agency to protect consumers are alive today because those consumers, as loyal taxpayers, have protected them by extending the mother of all low-interest loans.

The banks are healing. Good for them (and for us). But let's not forget, as the dividends start to fly and as housing sales reignite, how we got into this mess. If a systemic regulator is required to protect financial firms from themselves, a consumer protection agency is required to protect us from them.

Chart courtesy of the Consumer Federation of America.

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