Better World Club

Monday, April 5, 2010

New Approach to Consumer Finance Reform

Permit Rulemaking but not Enforcement? Millions of American Teenagers Ask Republicans to Adopt Them

Help Ensure that the Consumer Finance Protection Agency Can Enforce Its Own Rules (Including for Car Dealers)

Reform of the regulations (or lack of regulations) that helped create the recent finanical crisis has passed the House of Representatives and is now stalled in the Senate Banking Committee.

One key stumbling block is the creation of a new Consumer Finance Protection Agency. While one group of conservatives is opposed to the new agency altogether, another is willing to see it created, as long as it is housed in the Federal Reserve Bank.

A recent Frontline documentary reported that former Federal Reserve Chair Alan Greenspan told former Commodity Futures Trading Commission Chair Brooksley Born that he didn't believe that fraud was something that needed to be enforced or was something that regulators should worry about.

And the Federal Reserve is where an anti-fraud effort should be housed?

Oh, and some Senate Republicans are willing to live with giving the CFPA rulemaking authority but not authority of enforcement.

Luckily, Senate Banking Committee Chair Chris Dodd (D-CT) is likely to produce a more progressive draft, one that is particularly mindful of enforcement of non-mortgage, non-bank lenders like car dealers.

In the version of the legislation that passed the House, auto dealers, which originated some $700 million in outstanding debt in 2009, won a "carve out" that exempted them from the agency's rulemaking altogether.

Initially, it seemed that the Senate would include similar exemptions. But Dodd's forthcoming draft may empower the CFPA to crackdown on non-mortgage, non-bank lenders after all.

Do you believe in an independent Consumer Finance Protection Agency with rulemaking power AND the power of enforcement? Please contact Senate Banking Committee Chair Chris Dodd and encourage him to establish an independent CFPA with enforcement power over both banks and non-mortgage, non-bank lenders. A sample letter is below. Contact Senator Dodd. Then let your Senator know that he or she should pass the bill produced by Dodd's committee.

Chairman Dodd,

Thank you for your commitment to strengthening consumer finance regulations and the creation of a Consumer Finance Protection Agency. The financial crisis of 2008 has surely taught America that deregulation and poor oversight of lenders are dangerous threats to the health of our economy and the well being of the American people.

It is absolutely vital to the purpose of the CFPA that it possesses not just the ability to regulate lenders but also the power to enforce its regulations. If enforcement is left to already existing agencies, the CFPA will surely be crippled in its mission. How can fraud regulation be placed in the Federal Reserve when at least one prior Federal Reserve Chair stated that he felt that “fraud should be left to the marketplace?”

What’s more, the agency should maintain its regulatory and enforcement powers over banks and non-mortgage, non-bank lenders alike. In 2009, about $700 billion of debt originated from auto dealers. As such, limiting the CFPA’s authority to the banking sector alone cannot achieve the goals of the legislation currently before your committee.

I urge you to make sure that the Consumer Finance Protection Agency is established as an independent agency with the ability to regulate and police all lenders.


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