FSPC: Slowing The Race To The Bottom
By Consumers Union on Friday, March 13th, 2009
The new consumer watchdog agency that Senators Durbin and Schumer proposed would not only be good for you, it would be good for the financial industry as a whole.
Caveat Emptor explains it this way:
“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 — and the mortgage won’t even carry a disclosure of that fact to the homeowner.”
These homeowners know exactly what it means to buy a defective mortgage.
The Financial Product Safety Commission (FPSC) would be an independent agency, receiving no funding from the financial industry. The Commission won’t become a servant to the industry it oversees—unlike our experience with the Office of the Comptroller of the Currency which has frequently sided with the Banks in court.
The FPSC would be good for consumers and actually improve the strength of financial institutions because could stop practices that lead to defaults and bankruptcies. By implementing across-the-board standards, the FPSC can eliminate the “race to the bottom,” in which financial institutions copy each other’s worst practices in order to maximize profits, ultimately leading to excessive risk-taking by financial firms. By creating a floor beneath which consumer financial product safety cannot fall, not only are we protected, but the financial industry itself is safeguarded against one of its most dangerous practices.
The FPSC proposal would establish federal minimum standards, not maximum standards. Right now some federal banking regulators claim that those credit cards regulations take precedence over state laws eliminating stronger consumer protections. The FPSC, however, would not preempt stronger state regulations (for more on preemption), and would allow states to establish their own higher standards if they choose.