Whither the CFPA?

Whither the CFPA?

The fate of the Consumer Financial Protection Agency (CFPA) is hanging in the balance of negotiations led by Senator Chris Dodd (D-CT). As chair of the Senate Banking Committee, he is responsible for drafting the Senate version of financial regulation reform. He spent the month of February trying to craft a compromise that might garner enough Republican support to actually become law. 

The CFPA has become the focal point of Dodd’s negotiations. He’s signaled a willingness to negotiate it away through various proposals that have been floated or leaked over the past several weeks. The most recent proposal is for a watered down version of the CFPA housed in the Federal Reserve. Even this weak form of consumer protection might be too much for Republicans to stomach, and Democrats aren’t exactly excited about it either. 

Dodd has claimed that a final draft will come out of his committee within days. It’s unclear exactly what kind of final proposal will emerge with Republicans, conservative Democrats, and bank lobbyists unwilling to support any CFPA no matter how watered down and liberal Democrats and consumer advocates unwilling to support a weak CFPA. 

While the drama of bipartisan committee negotiations plays out, it’s worth remembering why we support an independent CFPA in the first place. Nobody does a better job than Elizabeth Warren, the primary advocate and champion of the CFPA, of explaining it (and here she is on The Daily Show explaining the need for financial reform as a whole and what it’s up against). 

We support a strong CFPA because, to paraphrase an illustrative example from Warren, we regulate toasters to protect consumers from electronics that could start a fire, but we don’t presently protect consumers from risky financial products that can bring the economy to the brink of collapse and necessitate taxpayer bailouts of the financial sector. That’s not right. 

Consumers deserve reasonable protection from the often predatory products sold to them. Consumer protection must apply not just to banks but also to nonbank institutions such as payday lenders and check cashing outlets whose outrageous rates target the poor and help to perpetuate cycles of poverty for entire communities.

And the CFPA needs to be independent for two critical reasons. First an independent CFPA will simplify and streamline the overly complex web of regulations (see the full post related to the linked chart here) that allows banking lawyers to find loopholes between the various regulatory agencies. And second, it’s a bad idea to have the same agency be responsible for the health of banks and the protection of consumers. On the second point, the hidden fees buried deep within credit card contracts improve profits of banks at the expense of the consumers who pay the fees. This simple fact alone puts the agency charged with protecting banks at odds with the proposed agency in charge of protecting consumers, and that, in a nutshell is the basic reason why banks are lobby hard against the CFPA.

The task before Chris Dodd and the Senate Banking Committee is no less than to write new rules to rein in the financial industry that – the very same industry that brought the entire economy to its knees just over a year ago. It’s not a task that for the misguided goal of bipartisan compromise should be weakened to satisfy industry lobbyists.