L-R: CUA law professor Ralph Rohner; Eric Stein, deputy assistant secretary for consumer protection, U.S. Treasury Department; Oliver Ireland, partner,Morrison & Foerster; Arthur Wilmarth, professor of law, George Washington University; Heidi Schooner, professor of law, Catholic University of America.
Experts Agree on Need for Overhaul of Financial Consumer Protection Laws
Sometime in December 2009, the House of Representatives will probably vote to create a new federal agency with one mission: to help American consumers avoid making mistakes that can destroy them financially.
The Consumer Financial Protection Agency Act of 2009 is not yet in final shape, but the bill’s bottom line—to centralize the authority to supervise, examine and enforce consumer financial protection laws—should remain intact.
Experts speaking at a panel convened by The Catholic University of America’s Columbus School of Law say increased federal policing of consumer lending law and other aspects of personal finance doesn’t come a moment too soon.
“Massive failure of consumer protections was significant cause of this crisis,” said Eric Stein, deputy assistant secretary for consumer protection, U.S. Treasury Department, referring to the severe economic rollback of the past couple of years. “The status quo is not an option as we think about what to do going forward.”
Stein was among three panelists who participated in “The Future of Consumer Finance Regulation,”
a 90-minute program held at the National Press Club on Dec. 3 that was organized by law school professors Ralph Rohner and Heidi Schooner. The discussion was intended to explore the causes of and solutions to the recession, which has resulted in record foreclosures, bankruptcies and high unemployment.
All of the participants agreed that responsibility for consumer financial protection has been too diffuse, spread among at least seven federal agencies. Oliver Ireland, a partner with Morrison & Foerster, who previously served as associate general counsel of the Board of Governors of the Federal Reserve System, held his former employer partly responsible for the number of homebuyers who purchased more house than they could really afford based on artificially low interest rates.
The panel spent 30 minutes on audience Q & A
“The Fed had the power to require better disclosure of lending terms. It just didn’t do it,” said Ireland.
Most people who were approved for mortgage loans over the past several years were probably aware that the loans typically are packaged, bought and sold many times over. Beyond that, they don’t really care. But the unsustainably lenient terms of many of the loans made financial institutions eager to pass them on “like toxic hot potatoes,” in the words of Arthur Wilmarth, a George Washington University law professor and expert in banking law.
As many other commentators have, Wilmarth likened bank lending practices to a “Ponzi scheme.” In the case of some of the largest banks, Wilmarth noted, the high-risk loans were carried out under the very noses of federal regulators who are tasked with spotting and putting the brakes on such practices.
“What were they looking at?” he wondered. “Anyone would say this is all going to blow up.”
The three panelists disagreed on whether the current wording of the Consumer Financial Protection Agency Act of 2009 adequately accounts for the states’ role in consumer financial protection, an issue that will have to be settled by Congress.
It’s worth taking the time to get this proposed law right, said Wilmarth (above, center) because consumers have misunderstood and been damaged by predatory lending practices for far too long.
“I want this [oversight] function to go to an agency that cares about it and believes in it,” he said.
“The Future of Consumer Finance Regulation” was the second in a broader a four-symposium series sponsored by the law school titled: Critical Insights in the Law and Law Practice:Ethical and Moral Responsibility. All programs are held at the National Press Club in Washington, D.C.
There are two remaining symposia in 2010:
February: “Innovative Approaches to Advancing Corporate Morality.”
April: “Philanthropy in the 21st Century: Should All Charities Be Created Equal?