By Sally Greenberg, NCL Executive Director
This week marked a historic turning point in the fight for financial reform. A bill passed by the Senate will help protect consumers from usury by banks, payday lenders, and car dealer financing schemes that rip off hardworking Americans. The Senate now joins the House in having passed this landmark legislation – now the bills will need to be reconciled in conference and sent to the President. A big shout-out goes to Americans for Financial Reform – a vibrant coalition of consumer, labor, and civil rights groups – for helping get the Senate bill over the finish line
What’s in the bill for consumers? Well, everything really; this is a bill that came out of the consumer movement. The idea of a regulatory body to protect consumers from harmful financial products emanated from Harvard Professor Elizabeth Warren, who made an interesting point – when you buy a toaster you’re not expected to look at the wiring diagram in the product manual to see if it’s safe. The same should be true of a financial product. It should be safe and transparent for consumer. But today it is not, whether it’s a credit card, a mortgage, or a payday loan, consumers rarely know or understand what lurks inside the 30-page agreement they are signing.
The Senate bill creates a new federal regulatory agency, housed within the Federal Reserve but independent, to write and enforce rules protecting consumers of financial products like checking accounts, mortgages, and payday loans and auto loans. The Senate version also allows state regulators – notably the Attorneys General in the states – to enforce these protections – instead of preempting them from doing so, as Congress has been inclined to do to many times in the past (thereby destroying yet another line of defense for consumers).
The Senate bill includes auto dealers, but the House bill unfortunately exempts them from oversight and coverage under the bill. This is a serious mistake; dealer-financed auto loans are notorious for ripping off middle and lower income consumers, including young enlisted men and women and their families. Too many dealers have been willing to play games with buyers, insisting they can’t find them a lower interest loan, telling them their financing fell through at a lower rate but they can find them a loan a few percentage points higher – then the dealer pockets the difference when the unwitting consumer pays more. This is an industry that cries out for regulatory oversight. NCL hopes in the days to come that the Senate won’t be forced to capitulate to the auto dealers’ lobbing juggernaut.
There are many other important provisions in the bill, including regulation of derivatives, curbs on financial institution borrowing and spending to avoid the “too big to fail” scenarios we’ve seen all too much, and investor protections. Hats off to Americans for Financial Reform and the Senators who supported these landmark reforms. NCL is proud to be part of this coalition.