Political War is Being Fought Right Now!

A series of bills aimed at watering down the Consumer Financial Protection Bureau will be up for vote this week. What's a consumer agency that can't protect?

by Abigail Field, contributor

FORTUNE -- An obscure but extremely important political war is being fought in Washington right now over the design and power of the Consumer Financial Protection Bureau, the new agency created in the wake of the financial meltdown to protect consumers and help prevent another financial crisis.
Either the banks will win or the American people will win. It's impossible for both stakeholders to declare victory.

Ready for a fight.

The fight will only get more interesting if Elizabeth Warren, currently the special advisor in charge of the agency, gets the nod from President Obama to run it, as is expected. It's worth noting that if this agency had existed before the housing bubble, we would have most likely avoided the worst of it and the financial meltdown it triggered. But it would have been powerless to help under the laws currently proposed. Although many factors fed the crisis, the "but-for" cause was the millions of mortgages that never should have been made during final years of the housing bubble. Those mortgages fraudulently pushed home prices into the stratosphere and filled many of the securities that so quickly turned to junk. The Consumer Bureau could have prevented those loans from being made.

And yet the very players who brought us the bubble and the meltdown -- the big banks that stopped underwriting their loans and offloaded them to investors -- are pushing hard to make the Consumer Bureau so feeble it won't be able to stop a future bank-driven disaster. The banks are spending tremendous cash on lobbying, and their trade groups are telling Representatives to vote for weakening the Bureau.

Sen. Jim DeMint (R-SC) is leading the Senate effort, trying to get rid of the Consumer Bureau entirely. But the greatest threat to the Consumer Bureau is "efforts by House Republican leadership to eviscerate it little by little," according to Travis Plunkett, legislative director of the Consumer Federation of America. "They realize that financial reform is still very popular with the public so instead of a head-on assault, they're taking a death by a thousand cuts approach."

Two of the bills Plunkett is talking about are scheduled to be voted on by a House Financial Services subcommittee on May 4. Both are ultimately expected to pass both the committee and the House of Representatives.

One bill, sponsored by Rep. Spencer Bachus (R-AL), would render the Consumer Bureau less able to act, less efficient, and thus less powerful, by putting a bipartisan committee in charge instead of a single director. Another bill, by Rep. Sean Duffy (R-WI), would effectively neuter the Bureau, preventing it from issuing meaningful rules.

Not all regulators created the same
To really understand who has power in Washington, it's helpful to contrast the Consumer Bureau's rule-making power with that of the main bank regulator, the Office of the Comptroller of the Currency.
The OCC's rules govern national banks, and thus affect Americans everywhere. Unfortunately for consumers, the OCC often decides that its rules trump state laws, typically using that power to destroy consumer protections. For example, the OCC chose to exempt most banks from state laws against predatory lending, and took away enforcement powers from state attorneys general, as Illinois Attorney General Lisa Madigan explained to the Financial Crisis Inquiry Commission.

To make its powerful rules, the OCC complies with the Administrative Procedures Act, which all agencies have to follow. Once issued, the rules can only be vetoed by Congress, by its passing a new law.

Contrast the OCC's nearly unchecked power to Consumer Bureau's. For starters, the new agency joins only OSHA and the EPA in having to comply with two laws besides the Administrative Procedures Act when it wants to issues rules. And the Consumer Bureau faces a hurdle no other agency does: the FSOC veto (pronounced F-Sock).

Read the complete article at: http://finance.fortune.cnn.com/2011/05/03/the-war-over-consumer-finance-protection-intensifies/?source=cnn_bin&hpt=Sbin

Elizabeth Warren Wants Simpler Credit Card Language

A Start...but we need more! Read the following article about Elizabeth Warren!

 

December 02, 2010, 5:00 PM EST

By Carter Dougherty

Dec. 2 (Bloomberg) -- Elizabeth Warren, the White House adviser in charge of setting up a consumer financial protection bureau, said the new agency should require greater simplicity in credit-card agreements instead of writing rules to ban abusive practices.

In her most detailed comments yet on how the agency might regulate credit cards, Warren said the Credit Card Accountability Responsibility and Disclosure Act of 2009 relied too much on a strategy of prohibition.

“The problem is that thou-shall-not rules do not fundamentally change the credit markets,” Warren said in a speech today to the Consumer Federation of America in Washington. “Right now, there are a lot of lawyers who are working overtime to figure out how to render the CARD Act rules ineffective.”

Warren has said that her top priorities for the bureau are to improve regulation of mortgages and credit cards, which would affect issuers including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc.

“It is this simple: No customer should be asked to take out a loan without knowing the costs or the risks of the deal,” she said. “And every customer should be able to compare different financial products straight up.”

Warren cited as an example one credit-card issuer who sought to circumvent the law’s prohibition on “hair-trigger” provisions that raise interest rates automatically when a cardholder falls behind on a payment. Instead, the issuer raised the card’s interest rate and promised a waiver or rebate for customers who paid on time.

“The effect is precisely the same as the practice that had been banned,” Warren said. She didn’t identify the issuer.

Complex Pricing

The Federal Reserve has since proposed amending the rule, Warren said. In the meantime, cardholders face a “complex pricing scheme” that “drains more money out of the pockets of American families,” she said.

She also said that mandating more disclosure doesn’t necessarily render credit-card agreements more comprehensible to consumers.

As an example, she cited the “Schumer box” that appears on agreements to set out annual fees and percentage rates. Named after Senator Charles Schumer, the New York Democrat whose 1998 legislation mandated it, the wording of the box has become too complicated, Warren said.

“Today there is much more disclosure, but there is much less understanding,” she said.

Warren did praise the 2009 CARD law for banning practices such as retroactive interest-rate increases on existing balances, that she said amounted to hidden costs.

“Right now, across America, families are saving money because the CARD Act makes credit cards safer for consumers and makes it harder for card issuers to hide the real cost of credit,” Warren said.

--Editors: Maura Reynolds, Gregory Mott
To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net.
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

To read the complete article go to: http://www.businessweek.com/news/2010-12-02/warren-wants-simpler-credit-card-language-fewer-prohibitions.html