Woodstock Institute believes that, contrary to Chairman Bernanke’s argument for the status quo, primary authority to enforce consumer protection should be in the hands of a single independent body. The current regulators who have been tasked with consumer protection have not done enough in pursuit of that goal, and that failure contributed to our current financial crisis by encouraging the practice of what New Yorker financial writer James Surowiecki calls confusion as a business strategy. Additionally, the structure of the financial regulatory industry produces a regulatory race to the bottom between the two main bank regulators, the Office of Thrift Supervision and the Office of the Comptroller of the Currency. Currently, financial institutions can choose their own regulators. Since regulators rely on the fees institutions pay for a large chunk of their budget, regulators end up weakening their rules in order to entice institutions. An agency with primary authority to establish and enforce consumer protection regulations will help keep standards high. Finally, many consumer protection laws reference and reinforce each other. Oftentimes, a violation of one consumer protection law is also a violation of another. A one-stop agency like the CFPA will ensure that all consumer protection laws are strenuously enforced, whereas dividing consumer protection among many agencies may mean that enforcement opportunities are missed.

 

We need the CFPA to handle consumer protection instead of the Federal Reserve because it will be fully dedicated to protecting citizens from harmful financial products. At the CFPA, consumer protection will be the agency’s primary goal, not an afterthought office relegated to the bottom of a larger agency’s priority list.

 

For more thoughts on the necessity of the CFPA, check out Elizabeth Warren’s mythbusting blog entry, Ed Mierzwinski at US PIRG's 10 reasons not to trust the Fed to protect consumers, and Simon Johnson’s argument that the banking and business community should want the CFPA.