February 2, 2010

The Honorable Christopher Dodd
Senate Committee on Banking, Housing and Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Senator Dodd:

We are writing today to convey our strong support for comprehensive regulatory reform, and to reaffirm our view that reform must include certain crucial elements. We look forward to working with you to craft, and to pass, legislation that will increase transparency, accountability, and fairness, and protect us all from the job loss and economic devastation of another financial crisis.

AFR supports an independent Consumer Financial Protection Agency (CFPA) that will create fair rules of the road for financial products by cracking down on the abuses and deceptive practices of credit card companies, preventing brokers and lenders from tricking borrowers into loans they can’t afford to pay back, and protecting consumers from deceptive and unfair products and confusing contracts. The CFPA would streamline the currently fractured regulatory system in which seven federal agencies oversee almost 20 different laws. The CFPA must have independent rulemaking authority, an independent budget not solely dependent on appropriations; examination and enforcement authority; presidentially-appointed leadership, its own staff, and the ability to make decisions independently and not subject to veto; jurisdiction over both banks and non banks; and it must not be subordinate to any other bank regulatory agency or agencies. A CFPA inside a prudential regulator would not meet this standard.

To truly end “Too Big to Fail” and crack down on the reckless behavior of the biggest banks, we need strong, specific preventative measures such as leverage limits, capital and margin requirements, limits on counterparty exposures, a ban on proprietary trading and limits on bank size through a low cap on total liabilities. Americans for Financial Reform also supports re-imposition of Glass-Steagall type divisions between commercial and investment banking in order to protect Main Street banks from the inherently volatile, reckless gambling of Wall Street.

To prevent another bailout, we need to extend the government’s resolution authority — currently limited to FDIC-insured banks — to cover non-bank financial companies, as well. A procedural hurdle like Senators Warner and Corker’s proposed bankruptcy-first presumption, will allow Too Big to Fail banks to delay during a crisis and hold the taxpayer hostage again. Only swift government resolution authority that is funded in advance by assessments on the biggest banks will allow America to avoid another season of bailouts

Nowhere was the catastrophic breakdown in our financial system more blatant than in the system of issuing credit ratings for securities—a dilemma echoed by dozens of economists, regulators and Members of Congress in the media and at congressional hearings. The conflicts of interest inherent in the “issuer pays” business model have corrupted the basic mission of credit rating agencies, which are subject to weak regulatory oversight and provide insufficient data, assumptions and methodologies behind their ratings. To address these weaknesses, we believe that the following elements should be included in legislation: establishment of an independent ratings clearing house to make rating assignments; reduction of reliance on ratings on a case by case basis; increasing SEC authority, particularly with regard to anti-fraud authority and post-rating surveillance; requiring greater transparency and improving governance practices by requiring representation for credit ratings users on rating agencies’ boards of directors; ensuring accountability through expanded legal liability; and establishing a universal rating scale for municipal and corporate bonds.

Effective regulation of the derivatives markets is likewise crucial to our future economic stability. Standardized futures, swaps, and derivatives must return to clearing and open exchange trading to provide adequate risk protection for counterparties and the financial system, as well as price discovery for users of these transactions. Financial “innovation” to exploit loopholes poses systemic risk, and for this reason AFR does not advocate any exemptions to regulation of derivatives; however, to the extent that any exemptions are enacted to protect corporations that use derivatives, they should be restricted to bona fide commercial hedging of physical commodities by end-users, so that they do not permit hedge funds, private equity firms, exchange traded or index funds, and other commodity speculators to avoid regulation. It is also crucial that federal regulators be given full authority to set and enforce position limits, including across-market aggregate position limits, and limits on activity on foreign boards of trade that allow U.S. access. Position limits are critical to preventing excess speculation from flooding into commodity markets – as occurred last summer – and driving another economically devastating energy price bubble.

Protections for average investors have suffered years of neglect, leaving investors with inadequate disclosures regarding the investments they purchase, and inadequate protections in their dealings with investment professionals. The latter is particularly troubling given the high degree of trust investors place in the brokers, financial planners and investment advisers they rely on when planning for retirement, saving for college, and other major life expenses. Unfortunately, some of these investment professionals have proven all too willing to abuse their position of trust. The draft bill includes a strong set of proposals to address neglected investor protection priorities, most importantly by imposing a fiduciary duty on all those who provide investment advice to act in the best interests of their clients and restricting industry use of forced arbitration agreements. Unfortunately, the fiduciary duty in particular has come under attack by brokers and insurers using misinformation and scare tactics to try to preserve the anti-investor status quo. We urge you to ignore these self-serving industry arguments and act instead to protect investors who have suffered devastating losses in the financial crisis and who need and deserve the protections included in the draft bill.

Financial oversight has failed to keep up with the realities of the marketplace, characterized by globalization, innovation and the convergence of lending and investing activities. As President Obama said during the campaign, ―We need to regulate institutions for what they do, not what they are.‖

This means that private investment funds, including hedge funds, private equity and venture capital, and their managers, should be subject to more stringent oversight. New regulations should, at minimum, require greater transparency and ensure that managers act in the best interests of investors. Managers of private equity and hedge funds must be registered with the SEC as investment advisors, and the SEC must have the power to regulate the funds themselves and require disclosures to investors and the public.

Senator Dodd, we appreciate the enormity of the task that faces you, the Senate Banking Committee and the entire Congress and Administration in seeking to reform our deeply flawed financial regulatory structure. An out of control cycle of deregulation, and the excessive influence of the biggest banks and Wall Street firms were fundamental sources of the financial crisis that has devastated our economy, cost millions of jobs, millions of homes, and trillions in retirement savings. We are convinced that the American public strongly supports financial reform that will change the rules, and hold Wall Street accountable, and your leadership is crucial to accomplishing this goal.


Americans for Financial Reform
Stephen Abrecht, SEIU
Heather Booth, Americans for Financial Reform
James Carr, National Community Reinvestment Coalition
Gary Kalman, U.S. PIRG
Rob Johnson, The Roosevelt Institute
Nancy Zirkin, The Leadership Conference on Civil and Human Rights

Following are the partners of Americans for Financial Reform.

All the organizations support the overall principles of AFR and are working for an accountable, fair and secure financial system. Not all of these organizations work on all of the issues covered by the coalition or have signed on to every statement.

A New Way Forward



Adler and Colvin



Alliance For Justice

Americans for Democratic Action, Inc

American Income Life Insurance

Americans for Fairness in Lending

Americans United for Change

Calvert Asset Management Company, Inc.

Campaign for America’s Future

Campaign Money

Center for Digital Democracy

Center for Economic and Policy Research

Center for Economic Progress

Center for Responsible Lending

Center for Justice and Democracy

Center of Concern

Change to Win

Clean Yield Asset Management

Coastal Enterprises Inc.

Color of Change

Common Cause

Communications Workers of America

Community Development Transportation Lending Services

Consumer Action

Consumer Association Council

Consumers for Auto Safety and Reliability

Consumer Federation of America

Consumer Watchdog

Consumers Union

Corporation for Enterprise Development

CREDO Mobile

CTW Investment Group


Economic Policy Institute

Essential Action

Greenlining Institute

Good Business International

HNMA Funding Company

Home Actions

Housing Counseling Services

Information Press

Institute for Global Communications

Institute for Policy Studies: Global Economy Project

International Brotherhood of Teamsters

Institute of Women’s Policy Research

Krull & Company

Laborers’ International Union of North America

Lake Research Partners

Lawyers’ Committee for Civil Rights Under Law

Leadership Conference on Civil Rights

Move On


National Association of Consumer Advocates

National Association of Neighborhoods

National Coalition for Asian Pacific American Community Development

National Community Reinvestment Coalition

National Consumer Law Center (on behalf of its low-income clients)

National Consumers League

National Council of La Raza

National Fair Housing Alliance

National Federation of Community Development Credit Unions

National Housing Institute

National Housing Trust

National Housing Trust Community Development Fund

National NeighborWorks Association

National Training and Information Center/National People’s Action

National Council of Women’s Organizations

Next Step

OMB Watch

Opportunity Finance Network

Partners for the Common Good


Progress Now Action

Progressive States Network

Poverty and Race Research Action Council

Public Citizen

Sargent Shriver Center on Poverty Law


State Voices

Taxpayer’s for Common Sense

The Association for Housing and Neighborhood Development

The Fuel Savers Club

The Seminal

U.S. Public Interest Research Group

Union Plus

United Food and Commercial Workers

United States Student Association


Veris Wealth Partners

Veterans Chamber of Commerce

Western States Center

We the People Now

Woodstock Institute

World Privacy Forum


Union Plus

Unitarian Universalist for a Just Economic Community

Partial list of State and Local Signers

Alaska PIRG

Arizona PIRG

Arizona Advocacy Network

Arizonans For Responsible Lending

Association for Neighborhood and Housing Development NY

Audubon Partnership for Economic Development LDC, New York NY

BAC Funding Consortium Inc., Miami FL

Beech Capital Venture Corporation, Philadelphia PA

California PIRG

California Reinvestment Coalition

Century Housing Corporation, Culver City CA

Center of Concern

Center for Media and Democracy


Chautauqua Home Rehabilitation and Improvement Corporation (NY)

Chicago Community Loan Fund, Chicago IL

Chicago Community Ventures, Chicago IL

Chicago Consumer Coalition

Citizen Potawatomi CDC, Shawnee OK

Colorado PIRG

Coalition on Homeless Housing in Ohio

Community Capital Fund, Bridgeport CT

Community Capital of Maryland, Baltimore MD

Community Development Financial Institution of the Tohono O’odham Nation, Sells AZ

Community Redevelopment Loan and Investment Fund, Atlanta GA

Community Reinvestment Association of North Carolina

Community Resource Group, Fayetteville A

Connecticut PIRG

Connecticut Association for Human Services

Consumer Assistance Council

Cooper Square Committee (NYC)

Cooperative Fund of New England, Wilmington NC

Corporacion de Desarrollo Economico de Ceiba, Ceiba PR

Delta Foundation, Inc., Greenville MS

Economic Opportunity Fund (EOF), Philadelphia PA

Empire Justice Center NY

Enterprises, Inc., Berea KY

Fair Housing Contact Service OH

Federation of Appalachian Housing

Fitness and Praise Youth Development, Inc., Baton Rouge LA

Forward Community Investment (Madison, WI)

Florida Consumer Action Network

Florida PIRG

Funding Partners for Housing Solutions, Ft. Collins CO

Georgia PIRG

Green America

Grow Iowa Foundation, Greenfield IA

Homewise, Inc., Santa Fe NM

Idaho Nevada CDFI, Pocatello ID

Idaho Chapter, National Association of Social Workers

Idaho Community Action Network

Illinois PIRG

Impact Capital, Seattle WA

Information Press CA

Indiana PIRG


Iowa Citizens for Community Improvement

JobStart Chautauqua, Inc., Mayville NY

Keystone Research Center

La Casa Federal Credit Union, Newark NJ

Low Income Investment Fund, San Francisco CA

Long Island Housing Services NY

MaineStream Finance, Bangor ME

Maryland PIRG

Massachusetts Consumers’ Coalition


Massachusetts Fair Housing Center

Michigan PIRG

Midland Community Development Corporation, Midland TX

Midwest Minnesota Community Development Corporation, Detroit Lakes MN

Mile High Community Loan Fund, Denver CO

Missouri PIRG

Mortgage Recovery Service Center of L.A.

Montana Community Development Corporation, Missoula MT

Montana PIRG

National Housing Institute

Neighborhood Economic Development Advocacy Project

New Hampshire PIRG

New Jersey Community Capital, Trenton NJ

New Jersey Citizen Action

New Jersey PIRG

New Mexico PIRG

New York PIRG

New York City Aids Housing Network

Next Step MN

NOAH Community Development Fund, Inc., Boston MA

Nonprofit Finance Fund, New York NY

Nonprofits Assistance Fund, Minneapolis MN

Northern Community Investment Corporation (St. Johnsbury, VT)

North Carolina Association of Community Development Corporations

North Carolina PIRG

Northside Community Development Fund, Pittsburgh PA

Ohio Capital Corporation for Housing, Columbus OH


Oregon State PIRG

Our Oregon


Piedmont Housing Alliance, Charlottesville VA

Rocky Mountain Peace and Justice Center, CO

Rhode Island PIRG

Rural Community Assistance Corporation, West Sacramento CA

Rural Organizing Project OR

San Francisco Municipal Transportation Authority

Seattle Economic Development Fund

Siouxland Economic Development Corporation (Sioux City, IA)

Southern Bancorp (Arkadelphia.AR)

Community Capital Development


The Association for Housing and Neighborhood Development

The Fair Housing Council of Central New York

The Help Network

The Loan Fund, Albuquerque NM

Third Reconstruction Institute NC

Vermont PIRG

Village Capital Corporation, Cleveland OH

Virginia Citizens Consumer Council

Virginia Poverty Law Center

War on Poverty – Florida


Westchester Residential Opportunities Inc.

Wigamig Owners Loan Fund, Inc., Lac du Flambeau WI