Real Consumer Protection: New York Times Gets it Right This Time

June 24, 2009
Editorial

Real Consumer Protection

The federal consumer protection system failed the country, disastrously, in the years leading up to the mortgage crisis. One big cause was the sharing of responsibility for compliance with laws and regulations among several agencies that communicate poorly with each other and tend to put the bankers’ interests first and consumer protection second — if they pay attention to it all.

The Obama administration was right on the mark last week when it recognized this problem and proposed a solution: consolidating the far-flung responsibilities into a strong, new agency that focuses directly on consumer protection. The plan, modeled on a bill already introduced in the Senate by Richard Durbin, Democrat of Illinois, deserves broad support in Congress.

Before the current crisis, the lure of big money from Wall Street, which could not get enough of mortgage-backed securities, spread corruption right through the mortgage process. Banks and mortgage companies fed kickbacks to brokers, who often steered borrowers into high-risk, high-cost loans. Appraisers did their part by inflating property values so that people could borrow beyond their means.

Deceptive practices became the order of the day. Borrowers who thought they were getting traditional fixed-rate mortgages sometimes learned at the last minute that they had been given loans with escalating interest rates, exploding payments or complicated structures that they clearly did not understand.

Federal regulators were slow to recognize the rising threat to the economy. They were also vulnerable to “regulatory arbitrage” by the banks, which currently get to choose their own regulators. If one regulator seems too scrupulous, a bank can shift to another and then another, in search of the weakest possible oversight.

Federal regulators may even have accelerated the mortgage crisis by invalidating state laws that would have protected people from misleading and predatory lending practices. By pre-empting those tougher state laws, the regulators helped create an atmosphere in which risky lending practices became the norm.

The new agency envisioned by the Obama administration would put an end to this slippery practice. It would have authority over all banks, credit card companies, other credit-granting businesses and independent, nonbank mortgage companies, which are currently not covered by federal bank regulation.

One of the agency’s principal responsibilities would be to ensure that mortgage documents are clear and easy to understand. Federal rules would serve as a floor, not a ceiling, so that the states could pass even more stringent laws without fear of federal pre-emption. The administration also envisions a data-driven agency that would react swiftly to events like the ones that should have foreshadowed the subprime crisis.

In general, the new agency would require little in the way of new institutional infrastructure. As the administration notes in its proposal, three of the four federal banking agencies have mostly or entirely separated the consumer protection function from the rest of the agency. It would be a relatively simple matter to consolidate those divisions in a new, free-standing agency.

Congress should resist its typical urge to water down this plan for the special interests that write campaign checks but helped precipitate this crisis. Lawmakers need to bear in mind that consumer protection laws don’t just shield individuals. They also protect the economy. That’s a good argument for building a strong, effective consumer protection agency.

10 Responses

  1. Clowns to the left – jokers to the right… I’m counting on the rest of us to come and take a fight! Capitalism was put down without so much as a whimper – welcome to fascism.

    Does not make a difference which party is in office – they’re both corrupt. Wall St, FNMA, HUD, FHLMC, etc etc – we are only fooling ourselves by participating in partisan bickering, it’s useless.

    BE AN INDEPENDENT… THINK FOR YOURSELF

    http://www.freeandequal.org
    http://www.campaignforliberty.com

  2. it smells like it means ” foreclosure fees monthly”
    these clowns just keep milking the consumer at every corner.
    how depressing .

  3. Michigan, which has the weakest consumer protection laws of any state, has ammended it’s foreclosure laws. Sec 3204 part D reads “The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness secured by the mortgage or the servicing agent of the mortgages”. Another nugget from the same section reads ” If a mortgage is given to secure the payment of money by installments, each of the installments mentioned in the mortgage after the first shall be treated as a separate and independent mortgage. The mortgage for each of the installments may be foreclosed in the same manner and with the same effect as if a separate mortgage were given for each subsequent installment. A redemption of a sale by the mortgagor has the same effect as if the sale for the
    installment had been made upon an independent prior mortgage.” I am not sure what this means. I know I dont like it

    http://www.legislature.mi.gov/documents/2009-2010/publicact/pdf/2009-PA-0029.pdf

    sorry for the double post

  4. Michigan, which has the weakest consumer protection laws of any state, has ammended it’s foreclosure laws. sec 3204 part D reaThe party foreclosing the mortgage is either the owner of the indebtedness or of an interest in the indebtedness
    secured by the mortgage or the servicing agent of the mortgages

  5. all these people working for these agencies only work for the benefit of politicians a corporations, in Virginia they are a total joke, I want my tax dollars back!!!!

    even the federal reserve is a true testament to failure and total corporate patronage.

    The law enforcement agencies are pandering the lenders helping them come clean when they, their executives and personnel were complicit in the fraud. now they are acting as they were the victims.

    PLEASE!!!!!

    Guys fight on.

    When will the next lawyers seminar will be????? and Where?????

    Thanks

  6. federal and state agencies are worthless..

  7. http://www.citizen.org/congress/

    This is an excellant website for US Citizens—-a non-profit action…

  8. If Obama cared about the economy he would have had this crisis handled already instead of doubling our national debt in 2 months on health care reform!

  9. If Obama cared about the economy he would not had this crisis handled already instead of doubling our national debt in 2 months on health care reform!

  10. Did You Know that just about every State & Federal Regulator, Attorney General etc.. has a Consumer Protection Division…Unit…Whatever, But NONE of them Represent Consumers under any circumstances whatsoever?

Leave a Reply

%d bloggers like this: