Predicting a "huge fight," the nation's banks and mortgage lenders are circling the wagons and preparing an all-out assault on President Obama's proposed consumer financial protection agency, which would oversee credit card fees, home mortgages, payday loans and most other types of consumer credit.
Edward Yingling, American Bankers Associaton president, sounded the alarm earlier this week and said the agency's powers would "go beyond every consumer law that has ever been enacted."
In testimony before the House Financial Services Committee, Yingling insisted that bankers support consumer protection but don't think creating a powerful new agency is the way to do it. He also took the position that banks aren't to blame for the current economic crisis.
"It is now widely understood that the current economic situation originated primarily in the largely unregulated non-bank sector," Yingling said. "Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors."
"It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created," Yingling said. But the committee chair, Rep. Barney Frank (D-Mass.), wasn't buying it. "Anyone who thinks we're not going to create this agency is mistaken," he said.
"The federal regulatory system has clearly failed to provide adequate protection for consumers and that failure contributed to the broader economic crisis," Frank told the Washington Post. "That is why I have made the creation of the agency one of our highest priorities."
The banks, which have accepted billions of dollars in emergency aid from American taxpayers, admit privately that their bargaining position is a difficult one but historically, the banking industry has gotten most of what it wanted from Congress, including the punitive new bankruptcy law that penalizes consumers driven into insolvency by job loss and medical bills.
Currently, there are several regulatory agencies — the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) the Federal Reserve and others — that regulate specific types of financial institutions. Under Obama's plan, a single agency would take over consumer protection duties from those agencies, creating what its supporters say would be a "level playing field," applying the same standards to all financial institutions.
The proposal has been enthusiastically received by consumer groups, who say that for too long the health of financial institutions has been put before consumers' financial well-being.
"The days of allowing financial institutions to shop around for the weakest form of regulation are over, said Pamela Banks, Senior Policy Counsel with Consumers Union. Under the presidents proposal, the only regulatory competition that would exist would be to increase consumer protections.
It's not just bankers who are worried about the measure. The trade association of the rent-to-own industry is worried about the bill's "ripple effect," said Ed Winn III, legal counsel to the Associaton of Progressive Rental Organizations. Winn said the bill could be "regulation run amok" and expressed fears it could supersede legislation currently moving through Congress that would regulate the rent-to-own business — a frequent target of bitter complaints from low-income consumers.
Consumers paying attention
"Banks can only operate safely and soundly if they are treating customers well," Yingling said in his committee testimony. "Banks are in the relationship business, and have an expectation to serve the same customers for years to come."
But consumers aren't buying that argument. In years past, the bankruptcy bill and other draconian measures made their way through Congress without consumers displaying much concern. But this year, consumers have the Internet at their disposal and they are using it to compare notes, band together and make themselves heard about mortgage modification problems, unfair banking practices and harsh increases in credit card fees and terms.
More than 1,600 customers of JPMorgan Chase have complained to ConsumerAffairs.com recently, many of them upset about an abrupt and unexpected increase from 2% to 5% in the monthly minimum credit card payment. Chase says the higher payment is the result of the bank's need to increase its capitalization and says it will help consumers get out of debt sooner. But many consumers say the higher payment is a back-door rate increase that will force many cardholders into default.
"We feel so betrayed and defeated by not only what Chase is doing but what the government is allowing to happen to those of us trying so hard to do the right thing," said Helen of Indian Trail, N.C. "Who do we turn to for a bailout when we face financial ruin?"
In many complaint forums, consumers are moving beyond airing their grievances and rallying for action.
"I have gone to www.house.gov and www.senate.gov and emailed and called my state rep and senators. And lastly I have contacted 2 different law firms, both whom have started class action suits against Chase," said Theresa of Romulus, Mich. "I love the outlet of blogging, but I also feel that we ALL need to do everything I did and more ... this is no different than people complaining about whose in office when they didn't bother to vote."