The Washington Post gets a nice scoop this morning on an actual good idea emanating from Washington: Setting up a consumer-focused regulator for everything from credit cards to mortgages.
The Post does a great job handling this story, pointing out that there’s going to be a battle to the death by bureaucracies defending their turf, but that they don’t have much reason to beef:
Responsibility for regulation of consumer financial products is currently distributed among a patchwork of federal agencies. Some of these regulators regard consumer protection as a low priority. And some financial products are not regulated at all.
This is wryly amusing:
The idea is likely to face significant opposition from industry groups, which argue that stricter regulation limits the availability of financial products to consumers.
Hey, if it limits the availability of 400 percent interest payday loans, option ARMs, and 36 percent credit cards, then more power to them.
The interesting thing about this proposal is that it shows the administration thinking big. This would be a landmark change in how regulation is conceptualized in this country, and it implies the pendulum is at least beginning to swing back from corporations to citizens. We have the Consumer Product Safety Commission (which Bush, of course, gutted), but people too often haven’t understood that financial products can be dangerous, too. That’s why the blame-the-borrowers argument has never made sense in the vast majority of cases. If you’re sold a Pinto whose poor design causes it to blow up, Ford is responsible for the damages even if you suspected it might be a crappy car.
This type of big thinking on consumers signals that the remake of the financial regulatory system in general will be sweeping, not just cosmetic. This will be good for journalism. As Audit Inspector General Dean Starkman has written repeatedly, regulation and good journalism often go hand in hand, and the crippling of oversight by the Bush administration (and to some extent the Clinton administration) had no small role in the failures of the business press during the runup to the crisis.
Bravo to the Post for giving some ink to Elizabeth Warren, the usually neglected and sometimes abused head of the Congressional Oversight Panel for the TARP and a prominent voice for the middle class:
The leading proponent of such a commission is Elizabeth Warren, a Harvard University law professor who now chairs the Congressional Oversight Panel for the government’s financial rescue initiative. Her plan is the kernel of the idea the White House is now considering, sources said.
Warren wrote in a 2007 article in the journal Democracy that the government had failed to protect American consumers in their relationships with financial companies.
“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street,” Warren wrote. “Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?”
We’ve been very critical of how the press has treated Warren, ignoring her because her views are too “liberal” or because she’s too much of an “advocate.” I’ve said that’s no excuse since she’s an official appointed by Congress and what she says by definition is news. Her apparent influence on Obama’s thinking on regulation proves that the press has been wrong to give her short shrift.
And speaking of the Consumer Product Safety Commission (which is being shorted so far by Obama, too, according to the LA Times’s David Lazarus):
Warren proposed creating a new commission modeled on the Consumer Product Safety Commission, which protects buyers of products such as bicycles and baby cribs.
I’ll be interested to see if we get any catchup stories on Warren.
Prepare to hear a lot of “we don’t need new regulations, we need to enforce the ones we already have” blather:
Such a commission could be very powerful. A number of sweeping federal laws already offer broad protection to consumers of financial products, but those laws have been lightly enforced in recent years.
The Department of Housing and Urban Development, for example, has clear authority to crack down on companies that charge excessive closing costs on mortgage loans, but repeatedly postponed planned reforms in the face of industry opposition.
That’s excellent context.
The paper even calls out predatory lending (by name!), which has gotten far too little play in the press:
It would also be one of its first proposals to address causes of the financial crisis such as predatory mortgage lending.