Wow! Decisions based on actual data!
By Consumers Union on Wednesday, March 4th, 2009
The President recently laid out 7 key principles for transforming the nation’s regulatory system.
The principles offer a good foundation for system-wide accountability, transparency, and oversight for those financial institutions so interconnected that their failure can bring down the entire system. Consumers Union has asked the President and his economic advisors to make protecting consumers just as important as protecting the system. After all, the credit crisis started with a failure to protect consumers from poor decisions by lenders about making home loans.
In the letter, we at Consumers Union also asked the Administration to make good use of its principle to base the supervision of financial products on “actual data on how actual people make financial decisions.” This will require moving away from approaches that are based mostly in fine print disclosures of complicated terms. Financial products can be made so complex that it is all too easy to fall into a “gotcha” fee that dramatically raises the true price of a loan or a bank account. We also are seeking an end to the “keep the fee, pass the risk” phenomenon which encouraged lenders to make loans that could not be repaid.
The President’s principles for financial restructuring make a strong start. Now is the time to use them to create real solutions to the current financial system problems and to prevent future problems. The President’s proposals will be even stronger if they are implemented to include:
• A federal agency focused on consumer protection, plus independence for all of the federal banking agencies from the companies they regulate. In a letter a to the Treasury Secretary, Consumers Union provided more details regarding concerns about the OCC’s effort to stymie state consumer protections.
• An active role for states in developing and enforcing consumer protections in financial services.
• Attention to practices by non-financial institutions, such as rating agencies and bond insurers, that can create risk to the financial system.
• Responsibility for future problems with a financial product for everyone who earns a fee from it.
• Steps to make the features and pricing of financial products for individuals less complex.
• Use of public enforcement tools by the financial regulatory agencies, not just private chats with the banks.
We also think it is far past time for credit card reform to improve consumer confidence and to help families know what a credit card debt will really cost before borrowing the money.
Regulatory reform is our chance to rebuild individual and world confidence in the integrity of the U.S. financial system.
For the full letter click here