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March 1, 2010

Leaked Financial Regulation Plan Puts Bank Profits Before Families; Independent Consumer Financial Protection Agency Needed Now

Demos Responds to Banking Committee Proposal, Publishes CFPA Briefing Paper; National Call-in Week to Support CFPA, March 1-4: 866-544-7573

Washington--This weekend, details of a revised Senate Banking Committee financial industry regulatory proposal were leaked to the public. The plan, a result of months of lobbying by the banking industry, the Chamber of Congress and corporate interests, reveals highly compromised reforms that tilt power toward banks and the failed regulators who contributed to the financial crisis.

In response, the following statement was issued from Demos, which has been supporting the establishment of an independent Consumer Financial Protection Agency (CFPA) to protect families and small business from abusive financial products. Demos is also a partner in the national Americans for Financial Reform coalition, which is encouraging concerned Americans to contact their member of Congress this week and encourage their support of financial regulatory reform.

"The ongoing crisis of high unemployment and foreclosure rates, tightened small business lending and increasing bank failure underscores the long overdue need for new standards of consumer protection in financial services," said Tamara Draut, Demos' Vice President of Policy and Programs. "Unfortunately, a recently leaked outline of legislation to restructure consumer protection regulation falls short of the mark, subjugating the needs of consumers to financial industry profits."

"Senate Banking Chairman Chris Dodd's proposal would entrust consumer protection oversight and enforcement to a Bureau of Financial Protection within the Treasury Department, not a free-standing, independent agency," Draut said. "Moreover, the Bureau's authority would be subject to the veto of the existing bank regulators whose mission is to protect the safety and soundness of the banking industry. The Bureau's scope of enforcement would not reach many non-bank institutions, such as the payday lenders whose toxic products impact the most disadvantaged communities."

Demos' Washington DC Office Director, Heather McGhee, highlighted how the proposal is a capitulation from the reform promised by the White House and Congressional leaders in 2009. She said that:

"Eight months ago, when the Obama Administration announced its blueprint for a free-standing CFPA as the cornerstone of a new system of fairness and transparency, Treasury Secretary Timothy Geithner declared, ‘Consumer protection will have an independent seat at the table in our financial regulatory system.' Likewise, overcoming the fierce objections of finance lobbyists, the House of Representatives passed the Wall Street Reform and Consumer Protection Act (H.R. 4173) in December 2009, which put the CFPA's mission of ensuring fair lending and equal access on par with the prudential regulator's role in shoring up the safety and soundness of the financial sector."

"Unfortunately, the compromise developed by Sen. Dodd has relinquished critical standards of independence and would codify consumer protection's secondary status in federal financial regulation," said McGhee. "The proposal would transfer consumer protection authority from the existing prudential regulators to a new Bureau of Financial Protection, but would provide that any Bureau rules may be voided by the Systemic Risk Council, made up of the same regulators who have consistently put bank interests ahead of consumer interests. The Bureau would be given no such veto power over the actions of the safety and soundness overseers."

"Banks and non-banks alike took part in the development and proliferation of risky financing schemes and abusive lending products," McGhee continued. "However, the Dodd proposal would limit the Bureau's enforcement authority over non-bank institutions to the mortgage market, leaving payday lenders, car title lenders and other predatory issuers beyond the reach of the government's consumer watchdog."

Draut concluded:

"We call on Chairman Dodd and the members of the Banking Committee to finally put American families first and forge a responsible plan, including a strong, independent Consumer Financial Protection Agency empowered to promote fairness and stability in financial services."

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