A number of attorneys general from around the country have voiced support for creation of a federal Consumer Financial Protection Agency, saying consumers need strong, unified protection.
A measure now before Congress, H.R. 3126, would take those powers from the Federal Reserve and place it in the hands of independent regulators who would oversee credit cards and other financial services. The Fed, along with much of the financial services industry, opposes the legislation.
"People are hurting," said Illinois Attorney General Lisa Madigan. "Now more than ever, consumers deserve an independent federal regulator whose sole mission is to protect their interests. They need protection at the federal level against the very practices that have caused so many of them to struggle financially, lose their jobs, see their home values decline and watch their college savings and retirement funds disappear."
Madigan says the current financial crisis, caused in part by the banking industry's lending practices, is reason enough for a new consumer regulatory agency. Madigan noted that her office's Consumer Protection Division has heard from record numbers of consumers who are struggling to make their credit card payments, pay off their rising debts, and avoid getting buried under an avalanche of unfair rate hikes, penalty fees, and hidden charges piled on by their banks.
"Abusive lending practices and regulatory loopholes are at the heart of the mortgage crisis that has devastated Arizona families and our state's economy," said Arizona Attorney General Terry Goddard. "I am aggressively prosecuting those who defraud Arizonans, but state action alone is not enough. Federal policy makers must reform the system to be more efficient and operate in the best interests of consumers."
The CFPA would protect consumers by setting and enforcing national rules for the financial services industry. Overall, the new agency would consolidate authority in one place with the sole mission of looking out for consumers across the whole lending market. It would have broad authority over consumer financial products including mortgages, credit cards and payday loans with the power to enforce existing statutes and levy fines for violations.
"Risky lending practices and a free-for-all in the financial services industry helped cause our current economic problems," said North Carolina Attorney General Roy Cooper. "Smarter regulation and stronger enforcement, from federal and state authorities, are clearly needed to protect individual consumers and our entire economy."
Cooper noted that strong North Carolina laws against predatory lending prevented a foreclosure problem in the Tar Heel state until federal regulators "pre-empted" those laws, allowing national banks to engage in subprime lending.
"Creation of a federal CFPA will be an important step toward a safer and sounder financial marketplace," he said.
The administration proposal would give state regulators, including state attorneys general, the authority to enforce their state consumer protection laws against federally-chartered institutions. New Jersey Attorney General Anne Milgram said states need all the help they can get.
"The breadth of financial fraud occurring in the current economic climate outstrips the resources of both the federal and state government - let alone either by itself," Milgram said in her letter to the Congress. "The joint resources of both federal and state government are not only desirable but are necessary if the security of consumers' financial resources is to be adequately protected."