Taking Sides: Clashing Views on Economic Issues: Issue 2.

4
"Do American Consumers Need a Financial Protection Agency?"

YES: Janis Bowdler argues that we do need a financial protection agency. Structural

flaws in our financial market have resulted in unequal access to those products key to

economic success and the proliferation of deceptive practices. Hispanic families routinely

pay for more credit, often accompanied by risky terms. They also bear a disproportionate

share of consequences. Federal regulators failed to reign in the worst practices that could

have set families up for financial success. Rollbacks on regulations and oversight paved the

way for many troubling practices.

Access to prime products was restricted, even when borrowers had good credit and

high incomes because short-term profits were prioritized over long-term gains. Subprime

models had streamlined underwriting processes and were easy to line with high fees and

inflated interest rates. Expensive and risky subprime credit became readily available while

affordable and low-risk prime credit was restricted. Disparate impact trends and practices

were not properly identified, investigated, or acted upon. The Federal Reserve and other

agencies did not exercise their authority to further investigate clear and obvious signs of

trouble. Simple investigations would have turned up enough information to justify new

lending rules and guidance, and possibly enforcement action.

Shopping for credit was nearly impossible. Credit issuers shop aggressively for

borrowers while federal regulators sat on major reforms for years that could have

improved shopping and reforms defining unfair marketing practices. It is unreasonable to

expect individual families to be able to regulate the market and detect what the Federal

Reserve did not.

authority, jurisdiction, and funding necessary to carry out its mission. CFPA needs to

assume responsibility for overseeing the financial industry’s compliance with fair lending

laws currently under the jurisdiction of the federal regulators. CFPA authority will allow it

to consolidate enforcement of consumer protection laws and better protect financial

services consumers. CFPA must be able to promote and advance simple, standard products

into the marketplace.

Financing offered by auto dealerships, mortgage brokers, or real estate agents are

major sources of credit that demand greater attention and oversight. CFPA must be able to

assess product offerings at a community and regional level. Subprime lenders, creditors,

and fringe financial providers often target entire neighborhoods based on the

demographics of the area. Overall, the CFPA can serve as a consumer watchdog and level

the playing field for those of modest means.

(Taking Sides: Clashing Views on Economic Issues pages 116-119)

NO: Bill Himpler argues that we don’t and that financial companies are already

heavily regulated. Finance companies are licensed and regulated by the states and abide by

consumer protection statues in all of the states in which they do business. State regulators

are among the first to identify emerging issues, practices, or products that may need

further investigation. The bill will use a “one size fits all approach” and treat all financial

services products the same.

The proposed agency would require an immense amount of resources before it

could become operational. Putting an untested agency in charge of consumer protection

for the entire marketplace could exacerbate existing problems. Financial services
customers are likely to have less borrowing flexibility and compliance cost will get passed

on to borrowers through a new tax. Consumers would be better served by, a regulatory

structure where prudential and consumer protection oversight is housed within a single

regulator.

It is not in the consumer’s best interest to add layers of bureaucracy, reduce credit

choices, and raise prices for financial services. It would reduce and eliminate many finance

companies that are a critical source of credit for consumers and small businesses. Small

businesses will also feel the effects as the CFPA credit squeeze would likely result in

business closures, fewer startups and slower growth. While he does not outright oppose

consumer protections, he does braces them if they done in a way to allow services to do the

following: plan and price for risk, operate their businesses efficiently and safely, and

promote access to a full range of credit products for Americans.

(Taking Sides: Clashing Views on Economic Issues pages 120-122)

OPINION: While I agree that creating a separate agency to regulate the financial

market may cause minor issues, I do think we need better regulation that works with local

authorities to identify bad practices. As financial services have increased across the

country both in physical and digital space, more should be done to better regulate how they

present themselves to prospective customers. In the U.S. we have a habit of letting certain

industries get so far ahead that legislators are too late to react when the damage has

already been done. This has been most recently seen through the 2016 election.

The election put a spotlight on how companies collect and analyze all of the

consumer data using various algorithms. In this case, much of that data was supplied to

them without our complete knowledge and used to influence our decision-making. While
this is a little more complex than the issue of financial services, it does serve as a prime

example of policy reacting to things instead of being proactive. Financial services will

evolve the way they exploit local communities and I think it is in the best interest of

everyone that it is better to overextend reach then pull back or adjust any policies.

Bibliography

Ivankovic, Miren. Taking Sides. Mcgraw-Hill Education Create, 2014.