Posted September 22, 2009 | comments 3 Comments

A watchdog for consumers

By F. Patricia Callahan

With great fanfare, the U.S. Chamber of Commerce has rolled out a multimillion-dollar lobbying campaign to defeat creation of a federal Consumer Financial Protection Agency. Contrary to the chamber's scare tactics, the new Consumer Agency would merely be a consolidation of the present fragmented federal regulatory system, with sufficient authority for the new agency to accomplish its goal of meaningful consumer protection.

Not all business leaders think like the national chamber. American Business Leaders for Financial Reform, a newly formed coalition of senior executives, companies and industry groups, supports an independent consumer agency and is actively working to counter the negative campaign by the big boys.

One of the hallmarks of the new agency would be its promotion of "plain vanilla" contracts for financial products. These would be off-the shelf templates -- for filling in the blanks for interest rates, penalty rates and a few other key terms. In so doing, a financial institution would legally satisfy all its federal regulatory requirements and have a regulatory safe harbor.

If some banks wanted to offer more complicated products, they could do so, provided they met the same regulatory standards of adequately disclosing risks and explaining costs, in terms plainly and clearly enough for people to understand them.

Even the American Enterprise Institute, a center-right public policy think tank, recognizes the urgency of providing consumers with a clear, simple statement of what their loans entail. Alex Pollock, former president of the Chicago Federal Home Loan Bank and now a scholar at AEI, has from the beginning of the mortgage crisis promoted a one-page disclosure form to be presented to consumers by lenders.

AEI's proposal sounds very much like the CFPA's template, doesn't it?

In their initial political advertisements, the national chamber claims that the local butcher would be put out of business if a consumer agency were enacted. In Front Royal, there are two local butcher shops. In response to this author's inquiry, both said that they would not be impacted by the proposed consumer agency.

Prime examples of the urgent need for a consumer watchdog abound. One compelling case is Edward Andrescavage, in his late 60s, who is retired on disability and living in Pine Hill, N.J. He borrowed $5,000 on a home equity line of $100,000 from a national bank. The bank foreclosed on his home of 25 years, claiming that he owed $122,000. Andrescavage was never served with the complaint and the bank obtained a default judgment. The bank was never able to provide any documentation to justify the amount allegedly owed.

The Office of the Comptroller of the Currency (OCC), a federal agency that oversees national banks, and the Federal Reserve, which regulates home equity loans, were unresponsive. Andrescavage did not have the resources to retain a lawyer and no state agency could help because the OCC pre-empts state action, thereby allowing the national bank to get away with its tortious act.

Andrescavage's experience is symptomatic of widespread problems in the financial services sector and illustrates why a new federal Consumer Financial Protection Agency is needed. Under the present regulatory regime, there is no one watchdog to look out for the interests of consumers on such common products as mortgages, credit cards, payday loans and bank overdraft fees.

Access to credit is the lifeblood for small business owners who often fund their businesses with personal credit cards and loans. They deserve the protections that the Consumer Financial Protection Agency will provide.

We hope the U.S. Chamber of Commerce will reverse its blanket opposition to a Consumer Financial Protection Agency and instead put forward constructive proposals so that agreed upon objectives can be met.

Callahan is president and general counsel of the American Association of Small Property Owners, a property rights advocacy organization with offices in Front Royal and Washington, D.C.


    This article make an assumption that has little historical validity; creating a Federal Agency will actually protect consumers. Before we give any credence to this idea, it should be explained how the new agency will do a better job than the Fed, OCC, FDIC, OTS, etc. did in the recent financial crash.

    What is most likely is that 7 years from now, after our next financial meltdown, the new agency will be defending their failure to prevent disaster.

    Also left unexplained is how the new agency will not end up hamstrung by poorly written laws and regulatory authority that will result from intense lobbying done by the financial services industry.

    Regarding Edward Andrescavage and his plight; is this common? What percentage of OCC complaints are mishandled? Do you have any other examples? In what specific way did OCC mishandle the complaint? Did you even talk to the OCC?

    Basically, you are asking your readers to call for a complete new federal agency that will cost hundreds of millions of dollars based on one complaint issue. You do not even provide any validation of the complaint.

    This is extraordinarily lazy journalism. Using one instance to extrapolate a systematic condition is irresponsible.

    If you are incapable of providing adequate back-up for your points, why not just write a one-sentence article: "I want a new federal agency because I just do, so there."

    We appreciate WapnerPC taking the time to comment on AASPO’s op-ed in support of a consumer watchdog. Op-eds are meant to address a specific issue, here the national Chamber’s multi-million dollar media campaign to defeat a consumer agency, and to present a particular point of view, here to urge the Chamber to engage instead in constructive debate. Op-eds are not lengthy policy reports nor are they an exhaustive discussion of the issues. Op-eds are by design brief and to the point.

    For more on the Consumer Financial Protection Agency, we would direct your attention to highlights from Treasury Secretary Timothy Geithner testimony before the House Financial Services Committee on September 23rd. The highlights are posted on Treasury’s web site, under recent news.

    As the Secretary points out, “The need for a dedicated, consolidated consumer protection agency is clear. The current consumer protection system failed to protect consumers, responsible providers, or market efficiency and innovation. It failed to protect consumers from unexpected risks. Instead, it led them into a housing and consumer debt crisis. It failed to maintain a level playing field for responsible providers; instead, it let a large unregulated sector drag down standards. And it failed to set clear rules of the road for sustainable innovation to thrive. Instead, it left a vacuum in which institutions, including many subject to extensive federal oversight, followed their competitors down the easy path of tricks and traps for short-term gain. 

    The Property Rights Movement welcomes WapnerPC to the debate. Indeed, we look forward to working with all concerned citizens to correct the regulatory problems that have left our financial system so fragile and prone to further trouble. Like the Treasury Secretary, we too want to restore confidence in our financial system so that Americans will have a stable source of the credit they need to conduct their lives and build their businesses.

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