Obama Defends New Consumer Protection Agency

Posted by: Jane Sasseen on September 19

Throughout the summer, financial services lobbyists and their allies at the US Chamber of Commerce have quietly put together an aggressive strategy to kill the Administration’s proposal for an independent agency aimed at protecting consumers against predatory lending and other abusive tactics in when they take out mortgages, apply for credit cards or sign up for other types of loans.

We wrote about the strategy in this week’s issue of BusinessWeek. Fearful that such plans will lead to extensive government oversight and make it harder to sell many of their most lucrative products, financial industry lobbyists argue that the new agency will kill off innovation, limit consumer choice and ultimately drive up the cost of credit and limit its availability. They have also enlisted the Chamber of Commerce, which claims that any small business that extends credit to its customers could also come under the proposed agency’s regulatory control. And, with the Administration distracted by the health care fight, as one source we spoke with put it: “Until now, the message has been more controlled by the opponents than the Administration.”

Now, the Administration’s counteroffensive has started.

In his weekly radio address released Saturday morning, President Barack Obama highlighted the need for an independent agency to look out for consumer’s interests as a critical part of the financial regulatory reforms his Administration has proposed.

“Central to these reforms is a new Consumer Financial Protection Agency,” the President said.

While conceding that many people knowingly took on mortgage loans for more than they could afford, the President argued that a core cause of the financial crisis was that many others signed contracts they didn’t fully understand, which were offered up by lenders who provided misleading information about the terms and conditions.

“That’s why we need clear rules, clearly enforced. And that’s what this agency will do,” he added. “Consumers shouldn’t have to worry about loan contracts written to confuse, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or a debit card – that appear without a clear warnings on their statements.”

The President isn’t the only Administration figure stepping up the fight against the lobbyists working against the proposed agency.

Speaking at a conference on financial reforms at Georgetown University on Sept 18th Lawrence Summers, Obama’s chief economic advisor, dismissed the criticisms being made by the U.S. Chamber of Commerce. The business lobby has launched an aggressive advertising and lobbying campaign claiming that the proposed agency would limit the ability of small businesses to extend credit to their customers and tie them up in an intrusive web of government bureaucracy and control.

Summers dismissed those concerns and compared the allegations made in the Chamber’s ads to charges made in the health care debate that proposed legislation would create “death panels” that would control access to medical care for the sick and elderly. The President characterized those charges as a lie in his speech before Congress on Sept. 9th.

“I would suggest those ads are the financial-regulatory equivalent of the death-panel ads that are being run with respect to health care,” Summers told the Georgetown audience. “Those with an argument make it and those without a good argument try to scare people. And that is what is happening here.”

Proponents of the agency are also gearing up to fend off the lobbying campaign in Congress, where the exact shape and responsibilities of the proposed agency – as well as the core issue of whether a separate agency, independent of current bank regulators , is even needed – are currently being debated.

One Treasury official says that Administration official have done over 4 dozen briefings in recent months with Congressional representatives and their staffers to explain just what the agency would – and more importantly, would not – do.

Administration officials and Congressional staffers working on the legislation are also working to counter widespread industry complaints that the proposed legislation would effectively ban all but the most simplified, plain vanilla products.

Steve Adamske, the spokesman for Rep. Barney Frank (D-Mass), the powerful chairman of the House Financial Services Committee, which is working on the bill, argues those complaints simply aren’t accurate. Much like earlier an earlier bill against predatory lending, he says, legislation that would authorize the CFPA is being crafted so that specific products would not be banned. Instead, sophisticated and complex products will be allowed, but the agency will be charged with ensuring that they are clearly explained and sold only to appropriate customers. Any business or financial services provider “that is extending credit in a responsible way, without abuses, will not be impacted,” Adamske says.

With the battle now being joined – Frank’s committee is looking to move a bill on the CFPA forward by October, thought the timing of any potential Senate action remains unclear until the health care debate is over – outside proponents say they are confident Congress will eventually pass legislation to create the new agency.

“Eventually, the truth will prevail; the other arguments will dissipate,” says John Taylor, the head of the National Community Reinvestment Coalition, a community housing organization which has long been active in fighting against predatory lending.

Taylor argues that the abuse heaped on consumers through abusive and unclear lending in recent years provides clear evidence of the need for enhanced consumer protections. He, along with representatives from other consumer and housing organizations, have also been meeting with Congressional staffers to make the case that task will be best accomplished by the new agency.

“We’re hearing back from Congressional staffers who know the claims being made are not what the legislation says, any more than that the health care legislation says it would kill Grandma.”

It may not capture the nation’s attention, as the battle over health care clearly has. But down in the lobbying trenches, an equally hard fought battle is underway.