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Tuesday, November 10, 2009

Who will speak for me? Banking and Finance Regulation.

From the New York Times:

Mr. Dodd and his staff had held regular meetings with Senator Richard C. Shelby of Alabama, the ranking Republican on the banking committee, but those talks recently broke down. Mr. Shelby is said to be opposed to major provisions of Mr. Dodd’s bill, most notably the creation of an agency to protect consumers from abusive and deceptive mortgages and credit cards. Mr. Dodd has yet to produce a Republican who supports his plan. Moreover, several provisions will probably be opposed by moderate and conservative Democrats with ties to various industry groups that have raised objections to the measure.

OK: I have been called out on being naive more than once. But can someone explain what is wrong with an agency to protect consumers from abusive and deceptive mortgages and credit cards?

4 comments:

blukats said...

Considering I was just reading about all the lawsuits in the last couple of years against banks such as Washington Mutual that led to the downfall of many of them. The lawsuits were because these banks were writing loans with no paper, adding on all kinds of insurance charges and other nonsense. So not only would it protect us guys at the end of the food chain, but possibly also investors in those banks and all the others who suffer when they do bad business that causes them to self-destruct?

Obviously there are some companies with really deep pockets that don't want to be regulated, such as the banks that are left and the insurance companies. If they are really on the up and up they should have no problem with a bit of oversite because they should have nothing to hide....

Duchesse said...

I'd like the government to require full disclosure of all practices and terms, in plain language, for any debt product, rather than create another agency.

Issuing banks provide this info, and most busy consumers (NOT YOU, dear Frugal) won't take 20 minutes away from their consumption to read the terms and conditions that came with the product.

And they do hope we don't read, therefore incurring interest, or they won't make money.

Shelley said...

I suspect I can tell you what all my conservative family and friends would say, "We don't need yet another government agency!" Myself, I'm a bit stunned and saddened that there isn't already the role somewhere in the existing government that doesn't protect users of financial institutions. That said, it's an issue that is being grappled with here in Britain, with consumer rights groups fighting to outlaw banks being able to require mortgage insurance be purchased from them alone. I'd just like to be able to look on a website or ring up a bank and find out what is the current interest rate being paid on my various accounts. Instead, I have to go out and buy a newspaper I don't want.

Bradipo said...

I can tell you what the libertarian wing of the Republican party would say.

That sort of government agency would do as much harm as good. It would raise costs, because lenders would be hiring lawyers to keep track of the regulations and make sure they were following them. Those costs get passed on to customers.

They'd also add a whole 'nother layer of risk to the business--because even if you've got the lawyers keeping track, you can't be sure that none of your employees will make a mistake. And the extra profits to compensate the owners for taking those risks also get passed on to customers.

Finally, it distorts the whole marketplace: In order to avoid those extra costs and risks, the owners will move to avoid the regulated areas of the business. That raises costs too (because the companies who stay in have less competition). It also creates other kinds of odd problems, as companies work to find related businesses that fall outside the rules and shift the business to those areas.