Democrat Attorneys General Push for Consumer Financial Protection Agency
[Update 1: Adds comments from Warren, Frank] The Democrat attorneys general from Connecticut, Illinois, Iowa and Ohio are calling for the passage of legislation to create the Consumer Financial Protection Agency (CFPA), in order to protect borrowers from the predatory lending practices they say helped lead to the extensive retraction in the economy. In a conference call with reporters, Connecticut Attorney General Richard Blumenthal said the current network of federal regulatory agencies did not have consumer interests in mind before the near collapse of the financial markets because the agencies primary focuses were not on consumer protection. Blumenthal said the CFPA is a better alternative because the agency would focus exclusively on protecting consumers from predatory lending practices in mortgages, credit cards and other financial products. “The difference is focus. The whole point of this proposed federal agency would be to focus on consumer financial protection,” Blumenthal said. “What we’ve had up to now is a number of agencies doing this as a secondary focus in their spare time. What we need is an agency where we will pick a director and top staff that will focus directly on consumer financial protection.” Ohio Attorney General Richard Cordray, whose office has sued a number of mortgage servicers and the three major credit rating agencies, said the CFPA is needed to work in concert with state attorneys general efforts at consumer protection. A point of contention in the CFPA legislation is whether the CFPA’s regulatory power would supersede state regulations. Community banking advocates have argued such an arrangement would put small lenders at a competitive disadvantage. Cordray said the CFPA needs to operate in concert with state attorneys general. “The federal agencies have been complacent, aiding and abetting lawbreakers by supporting preemption claims when states sued to stop unfair or deceptive practices,” he said. “Until we establish a Consumer Financial Protection Agency, we will continue to have a regulatory black hole when it comes to many of the deceptive practices and products.” With the election of Sen. Scott Brown (R-Mass.), Democrats no longer have a filibuster-proof majority in the Senate. So far, no Republican senators have come out in favor of the CFPA. Iowa Attorney General Tom Miller said the CFPA shouldn’t be a partisan issue, but rather an issue of protecting individuals. “This is a classic choice that the members of Congress and the Senate have to make. There are two sides here. There’s the public side, protecting the public, and then there are the big banks and protecting them in a way I don’t think they should be protected,” Miller said. Senators have to ask themselves whose side am I on? Am I on the side of the public or the big banks?” Illinois Attorney General Lisa Madigan said state AGs have been at the forefront of protecting consumers by filing lawsuits against predatory lenders while federal regulators “did nothing to prevent the collapse” of the financial markets. Madigan said the Office of the Comptroller of the Currency (OCC), responsible for regulating large banks and thrifts, only took 11 enforcement actions against alleged predatory lenders 2005 and 2007, while attorneys general brought 8,000 actions against the same institutions during the same time. “The need for a strong and independent Consumer Financial Protection Agency has never been more apparent,” she said. “Consumers are demanding it and they deserve a federal regulator that protects their interests instead of only protecting the banks.” The attorneys general held their conference call on the same day The Wall Street Journal published an opinion piece written by Elizabeth Warren, a Harvard law professor and the chair of the Congressional Oversight Panel charged with overseeing the Emergency Economic Stabilization Act. In the article, Warren said the CFPA would rebuild the trust that’s been lost between financial institutions and consumers. “The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money,” Warrren wrote. “So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.” House Financial Services Committee chairman Barney Frank (D-MA) also chimed in on the issue, applauding Warren’s comments. “No one familiar with the track record of the bank regulatory agencies with respect to protecting consumers can deny the need for an independent agency if we are going to have effective consumer protection. Bank regulators have traditionally treated their responsibilities for consumer protection as a second priority,” Frank said in a statement released by his office. Write to Austin Kilgore.