Regulating consumer predators is a bit like Whac-a-Mole. No matter how many times you put the bad guys out of business, they keep popping up again and again. Maybe it is time to consider a lifetime ban from financial services for the worst offenders. The Consumer Financial Protection Agency proposed by the President may be just the right watchdog for the job of handing out such banishments.
A colleague recently suggested this approach, which has the advantage of not just stopping illegal activity, but stopping those responsible for it. No other approach seems to attack the root of the problem: those driving predatory activities. They may be the heads of large, national banks, but also the heads of small mortgage brokerages or closing companies.
While banishment could be used on large-scale consumer predators, it should also be used on small-scale operators. A few examples: bait-and-switching mortgage brokers, small-time predatory credit card lenders (those with $250 limits that begin with $200 in fees, for example), lending redlining (and reverse redlining), and others.
The Consumer Financial Protection Agency (CFPA) proposed by the Obama Administration is supposed to be a consumer watchdog agency, responsible for ensuring financial products are safe much as the Consumer Product Safety Commission (CPSC) does for physical products. It will be in the best position to supervise financial services vendors, large and small, and impose banishment when appropriate.
It may be that enabling the CFPA to banish the worst offenders as an extreme sanction is the best way to give the new watchdog real teeth.