The president last week sent a 152-page wish list to Congress for what he wants out of the proposed Consumer Financial Protection Agency. The aim of the proposal is to make lending, investing and other disclosures easier to understand.
The cause is noble, but the irony rich. Any time the government goes to simplify anything it becomes a quagmire of even more incomprehensible drivel than it was to start. Just look at the language of the proposed legislation: The term "alternative consumer financial product or service" means a consumer financial product or service that is of the same type or class as a standard consumer financial product or service but that contains different or additional terms, fees or features.
Define "standard"? What's "different"?
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And who'd have thought "deposit-taking activity" would require three different definitions as it does in the legislation. No, this legislation is a far cry from making anything easier to understand. Armies of lawyers will have to include every bit of legalese they stuff into disclaimers to satisfy risk-averse (at least litigation risk) board members and management of financial services providers.
The legislation would also create a new Consumer Financial Protection Agency-just what the U.S. government needs-yet another agency to pile on more/different/contradicting regulations to improve coordination. By the way, how is the Department of Homeland Security doing these days?
While the government certainly should be looking out for the people, applying this layer of oversight to already regulated financial institutions will not only cause confusion for credit unions and others but take the agencies' eyes off the ball to engage in turf warfare. For example, an issue like setting an interest rate cap could be considered a consumer protection issue as well as an operational safety and soundness matter.
President Obama has proposed a year-end deadline to sign the legislation into law. I think setting an artificial deadline will only serve to muck up the already complex matter of financial services consumer protections. The dance between the new agency's jurisdiction and regulations will tango with the NCUA's and other continuing agencies' concerns could certainly be something to keep Tom Bergeron busy for a couple of seasons.
While the banks are diametrically opposed to the CFPA idea, CUNA and NAFCU are each vying for seats at the discussion table but taking different tacks, as usual. CUNA is saying the new agency might not be all bad. It would mean one agency with oversight concerning Truth in Lending and the Real Estate Settlement Procedures Act. However, they have expressed concern over the cost.
NAFCU, on the other hand, sent a letter to the House Financial Services Committee proposing a carve-out for regulated depository financial institutions. In addition, the NCUA and the banking agencies would set up consumer protection divisions in-house.
Current NCUA Chairman Michael Fryzel has already proposed such a division. While he's expected to be replaced by former Board Member Debbie Matz, this still seems like an idea she would be interested in.
The government exists to serve and protect the people, so it's being driven by a natural paternal instinct. However, there are so many moving pieces to the issues at hand in the financial services market, the government cannot possibly wrap its hands around all of them without creating a stranglehold on innovation and recovery, much less growth.
The government can stick its finger in the dam as much as it wants, but at the end of the day, a gusher's coming. People individually are responsible for their actions-many need better educating on the different financial services and products, while others need to learn to live within their means.
And still others are just hitting hard times and may have no other option but to take a predatory loan to keep their families fed.
Wages have not kept up with the cost of living increases, from college tuition to electric bills, and people have supplemented the difference with home equity loans, credit cards and other borrowings.
The situation is only exacerbated by current pay cuts and layoffs. Not only are people over-spent, they're over-lent, and sometimes, the best thing you can do for a member is just say no.
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