Earlier this week, a group of 70 law professors from universities across the country released a 16-page Statement of Support (pdf) detailing why they’re in favor of the proposed Consumer Financial Protection Act. You can read the statement yourself via the link above, but we’ve summarized them below.
Here are the four critical goals this group says can’t be accomplished with existing regulatory structures:
1. We need “a single place to concentrate federal rulemaking authority over consumer financial transactions joined with primary enforcement authority over them.”
They argue that current agencies have proven they’re not up to the job:
At critical moments of consumer confusion and vulnerability, regulators of financial institutions, including the Federal Reserve Bank, the Office of Thrift Supervision, and the Office of the Comptroller, have demonstrated unwillingness to expend resources to develop appropriate rules and guidelines and to police mortgage and credit instruments. The two-decades-long delay in effectively regulating credit card practices, despite many warnings from consumer groups, responsible lenders, and scholars, for example, is a well-documented and catastrophic lapse that continues to inflict serious financial injury.
2. We need “the power to restore banking federalism so as to better accommodate consumer interests.”
The power of states to regulate financial companies has been undermined in the past 30 years and needs to be restored and protected:
State legislatures and courts need to be able to continue to develop consumer protection law. Many of the types of non-bank financial products that will be within the jurisdiction of the CFPA have been regulated up until now only by the states, and their good work should not be undermined. In addition, problems are much more likely to grow larger if they can be addressed only at the federal level and not also by states where they first appear.
3. We need “the authority to improve opportunities for consumers to enforce their rights.”
Arbitration agreements rarely work fairly for the consumer; they’re almost always more favorable to the financial company. These guys say that “existing agencies have not acted effectively to promote the availability, impartiality and quality of arbitration tribunals.” They say we need the ability “to regulate consumer arbitration to insure that it is conducted fairly, or, if that proves impossible, to ban it altogether.”
4. We need “the ability to establish standards for fairness and honesty in agreements for financial products and services.”
Current disclosures don’t adequately inform consumers of the real costs of a financial product. The legal scholars note that
If disclosures alone were adequate to enable consumers to obtain appropriate loans, it would not be possible for mortgage originators to “steer” borrowers who could qualify for prime loans to more expensive subprime loans, and yet such steering has been alleged repeatedly.
“Consumer and Banking Scholars Show Support for the Consumer Financial Protection Act” [Hofstra University School of Law]