At a time when the most important consumer banking brand in the United States is the FDIC and the American consumer believes that bankers are overpaid, dishonest and not interested in service, the banking industry must embrace the Consumer Financial Protection Agency. This support for the CFPA is not because some form of legislative approval is inevitable, but because the American consumer needs the protections that such an agency would provide.
The American consumer has lost trust in the banking industry and rightfully so. Over the past five years the industry as a whole has proven unworthy of the consumer's trust. Without huge assistance from the government, the banking and financial service industries would have failed in 2008 and 2009. Without deposit insurance, consumers would be keeping their hard-earned cash at home underneath their mattresses.
Time and time again, banks have tried to maximize profits by selling inappropriate products to the American consumer, by offering too many of the same type of products to unsuspecting consumers, by failing to take seriously the bank's responsibility to educate consumers, by issuing rules and regulations that even lawyers cannot understand and by not helping consumers who get into trouble because of the products that banks sell them.
With this complete lack of trust growing in a global recession and with this history of taking advantage of the American consumer, what is the reaction of the banking industry? Banking trade groups are mounting a campaign to battle against the Obama administration consumer protection proposals. Mortgage loan modification efforts have been abysmal.
Credit card rates are increasing and lines of credit reduced with little concern for the individual consumer. Loan applications are dwindling because banks have tightened the underwriting criteria to such an extent that creditworthy applicants are being turned away.
The banking industry must recognize the current situation (it's bad) and must embrace the concept of the CFPA. The splintered efforts of government agencies thus far have proven too little and too late. Why has the current approach not worked? The answer is easy. The Federal Reserve and the other regulatory agencies have never seen as their primary mission the protection and education of the consumer. Therefore, consumer protection was a very low priority, and the consumer was left without any protective oversight.
Some bankers opposed to the concept of a new agency complain that these unfair practices did not take place at their individual institutions.
America needs the CFPA because the banking industry will never regain the trust of the American consumer without an impartial oversight agency which is perceived as the ombudsperson and the protector of the consumer.
The agency must be mandated to create a level playing field where the rules and regulations are understandable, transparent and brief. The agency must work with the industry to simplify rules and regulations and to identify misleading and inappropriate products and marketing. Its work will lead to both a better-educated consumer and a consumer who will want more financial products because they will be easier to understand and will have the approval of the CFPA.
The CFPA is neither about political warfare between Democrats and Republicans nor about overreaching intrusion of the federal government into industry. It is about correcting unfair practices, about a better-educated consumer and about rebuilding trust in financial services and the market economy.
The banking industry must get behind the CFPA before its opposition increases the consumer's disenchantment with financial services.