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‘Watchdog’ to bite U.S. banks

By Marcie Geffner · Bankrate.com
Wednesday, September 29, 2010
Posted: 10 am ET

Politics aside, it's easy to like at least some of what President Barack Obama recently had to say in the White House Rose Garden about the mission of the new Consumer Financial Protection Bureau.

Here's an extended excerpt:

"Never again will folks be confused or misled by the pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans. The bureau is going to crack down on the abusive practices of unscrupulous mortgage lenders. It will reinforce the new credit-card law that we passed, banning unfair rate hikes, and ensure that folks aren't unwittingly caught by overdraft fees when they sign up for a checking account. It will give students who take out college loans clear information and make sure that lenders don’t game the system. And it will ensure that every American receives a free credit score if they are denied a loan or insurance because of that score. Basically, the Consumer Financial Protection Bureau will be a watchdog for the American consumer, charged with enforcing the toughest financial protections in history."

Easy, that is, if you're one of the U.S. consumers the President wants to protect from all those abusive, unscrupulous, confusing, misleading and unfair practices.

Hard, on the other hand, if you're a bank or other financial institution or, more personally, an employee of a bank or financial institution.

While the new bureau may be good news for consumers, a true crack down on such banking practices, extended out to its logical conclusions, could also mean smaller and less profitable banks and fewer and less lucrative jobs for banking employees.

Unless, of course, politics takes the teeth out of the watchdog or the much-maligned banks and other institutions figure out other ways to make money from banking customers and financial transactions.

Judging by the tenacity of politicians and creativity of financial product managers, either -- or both -- of those outcomes seems at least as likely as the protections the President has promised.

Call it a tug of war: Who wants to bet on the watchdog and who wants to bet on the banks?

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3 Comments
Marcie Geffner
September 30, 2010 at 5:27 pm

Indeed, housing the new Consumer Protection Bureau within the Fed was a contentious issue, and it's not hard to imagine the agency as an landlocked parcel in a building full of bank-friendly regulators.
Banks may have great difficulty regaining consumers' trust and confidence, and few consumers seem at all inclined to cry over the banks' potential loss of power. That's especially true, given, as Steve notes, their enormous--and unforgetable--contributions to the financial crisis.

Steve
September 29, 2010 at 10:45 am

The article is somewhat interesting, but fails to mention that this new agency organizationally comes under the Federal Reserve -- it could well be difficult to make consumer-friendly improvements, being supervised by the bankster industry, especially the mega-banks who issue most credit cards. (Many/most people don't know that the Federal Reserve is not an official US Govt agency -- instead, its membership and most of the directors and other high rankers are bankers, especially from the mega-banks.)
Contrary to the author's implication, if there is strong oversight of the financial industry to keep them on the 'straight and narrow' path of ethical,open-handed dealings, they are likely to prosper.  This would be due to increased trust and confidence on the part of consumers, and the establishment of common rules for all the players. As she mentions, the financial industry is likely figure out other ways to make money from banking customers and financial transactions.
Let's not cry prematurely for the most prosperous (and sometimes unethical) segment of our economy. And let's remember who contributed the most to the housing bubble, fraudulent real estate schemes, and other financial malfeasance, which contributed to our financial crisis.