Commentary by Susan Antilla
Jan. 25 (Bloomberg) -- Flouting the efforts of lobbyists to shut down his plan for a consumer protection agency, the newly combative President Barack Obama is digging in his heels. Spokesman Robert Gibbs said last week that it’s something Obama “is not willing to give up.”
Thus, we open another round in the brawl between Obama and business groups that claim the bill covering mortgage and credit-card lenders is a death sentence for small companies, expensive for consumers, and will “change the way Americans do business forever.”
It’s quite a rant in light of what the Consumer Financial Protection Agency Act actually says. Among its goals, which in some sections read like a treatise against loan-sharking, are to truthfully explain costs, benefits and risks of financial products to consumers and to do it all in plain English. Another of the act’s seemingly over-the-top provisions: to prohibit marketing and advertising that is “unfair, deceptive, or abusive.”
We certainly wouldn’t want to put a crimp on deceptive or abusive marketing, because for one thing it could take a real bite out of the available scandals for people like me to write about, and it’s no secret that we media types have been falling on hard times. As I read through the voluminous objections to establishing a consumer protection agency, though, I was more entertained than informed as to what all the fuss is about.
There is, for example, the drama set forth by the U.S. Chamber of Commerce, whose Web site includes a special stopthecfpa.com link that would have you believe the proposed agency would bring the U.S. to the brink of financial disaster. Again.
Scare Tactics
“The CFPA would make a bad economy even worse,” the site says, offering a comprehensive menu of slick, scary advertisements and business-owner testimonials that leave you worrying whether you’ve socked away enough bottled water and canned beans in the basement to survive the economic devastation that’s sure to result.
Particularly bone-chilling is the Chamber television advertisement called “Make it Worse,” 103 seconds of warnings about the economic terror that will result if the menacing CFPA becomes reality. Appropriate Indiana-Jones-confronts-Peruvian- booby-traps music augments the perilous mood in the background. The words of anxious small business people scroll across the screen. “How will the CFPA affect me?” asks Chamber member Mona Steck. “Simple: My cabinet shop business will cease to exist.”
I was curious to understand how the proposed agency could do that, but Steck didn’t return phone calls.
Bad for Consumers
The Web site of the American Financial Services Association, the business lobby for mortgage lenders and credit- card companies, offers a set of “talking points” to warn that “consumers will pay more for financial products and services at a time when they can least afford it.”
The group also notes that 68 percent of Americans think “we should not give an inexperienced new agency, like the Consumer Financial Protection Agency, too much power.” The survey, conducted in July 2009, crafts questions that my college sociology professor would have defaced with a fat red marker. Only 18 percent of the sample opposed the idea of the agency in the first round of neutral questions, but after respondents got all worked up from considering loaded questions about loss of access to credit, long-term harm to the economy and higher taxes, the “opposed” camp soared to 38 percent.
Effective Protection
The granddaddies of lobbying at the American Banking Association warn that it’s a mistake to have a separate agency for consumer protection; instead, they say, consumer protection should be taken care of by the same regulators who police an institution’s safety and soundness. Otherwise, a separation of the functions will result in “less effective consumer protection and safety and soundness regulation,” the organization said in an October 2009 white paper.
I’m sure the ABA is heartfelt in its worry over the welfare of consumers, but it still doesn’t offer an altogether convincing argument. Regulators who oversee safety and soundness are motivated most of all by the desire to have the institutions they supervise be profitable. But profits often come in the form of usury rates and excessive fees. Doesn’t it make sense to let a separate agency fight the battle for honest products and practices, lest the “soundness” guys allow compromise in the name of, well, soundness?
Writing the Rules
So the fight is on to see whether consumers will get an agency that looks out only for them. Elizabeth Warren, the Harvard professor who originally came up with the idea of a consumer financial agency, sent a letter on Jan. 20 telling supporters that “the next few weeks will determine whether families will have to play by rules written by the banks and for the banks -- rules that let the industry get away with anything.”
The day before, Ralph Nader penned a note to Connecticut’s lame duck Senator Christopher Dodd, who, much to the glee of business, has reportedly been warming up to the ABA’s idea of keeping the consumer protection function under the wraps of the safety and soundness folks.
Nader told Dodd that a decision to drop the agency would “signal to consumers across the land that you, as chair of the Committee on Banking, Housing and Urban Affairs, have lost touch with Main Street interests.” There could be motivation for Dodd to wean himself away from any populist inclinations. He will be needing a job soon, and it’s probably a safe guess that he won’t be pitching for a five-figure gig with some do-good consumer group.
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