Americans Need an Independent Consumer Financial Protection Agency

A consumer financial protection agency in the Federal Reserve is an oxymoron.

Wall Street and the big banks crashed the financial system with
abusive mortgage loans, have gouged consumers with outrageous overdraft
fees and feasted on rip-off credit card charges. If after all that,
Congress fails to establish an independent consumer protection agency,
then we will know that Sen. Dick Durbin (D-Ill.) was indeed right when
he said the banks own the Senate.

A functioning consumer protection agency could have averted many of
the worst abuses of the past decade, including those that worsened the
financial crash. That is, a working consumer protection agency not only
would have protected consumers from abusive banking practices, but it
would have protected the financial system itself from abusive banking
practices.

The Fed had its chance. It could have acted. It should have acted.
It was beseeched to act. It failed. Why in the world would we locate a
fresh effort at consumer protection in an agency that so clearly
evidenced its hostility to consumer protection when it mattered?

This is the same Fed that for years ignored pleas from consumer
advocates to crack down on predatory lending and other abusive
practices, long before the financial crisis hit. This is the same Fed
that took three enforcement actions against subprime lenders from 2002
to 2007, at the height of the bubble and its attendant abuses. This is
the same Fed that failed to enact rules to stop predatory mortgage
practices until 2008 - after the housing market had collapsed - even
though it was granted authority to issue such rules in 1994. This is
the same Fed that failed to regulate abusive credit card practices
until 2008, after Congress threatened to take away its power to do so.

A fresh start at consumer protection should establish a new agency that has:

* full rulemaking and supervision authority;
* full enforcement authority;
* independence;
*a stable, sufficient budget; and
*authority to establish a federal floor of consumer protection, not a ceiling.

Those are the tools and powers needed to protect consumers from a
financial industry whose talent for "innovation" seems primarily
directed at innovating new ways to rip off consumers.