Labor & Employment Law

Bill Would Create Agency to Protect Consumers from Big Banks

By James Parks

The global financial meltdown demonstrated how vulnerable workers and consumers are to abuses in consumer lending practices and Wall Street’s recklessness. A package of reforms now on the House floor would help protect Americans from a laundry list of risky Wall Street practices from predatory lending to unregulated derivatives.

In a letter to House members, the AFL-CIO urged lawmakers to pass the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173). The letter said, in part:

The bailouts of major banking institutions reinforced the idea that workers and consumers must fight for protections they rightly deserve. Once signed into law, this package of reforms will work together to address the plethora of causes from predatory lending to unregulated derivatives that led to last year’s meltdown.

Introduced by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, the bill would create a Consumer Financial Protection Agency (CFPA) to enforce consumer protection and civil rights laws that existing federal regulators have largely ignored. It also would provide increased transparency and regulation in financial derivatives such as those that brought down AIG and helped create the housing bubble.

The bill would require hedge fund and leveraged buyout managers to register with the Securities and Exchange Commission (SEC) and give the agency the power to require disclosures from those funds to investors. H.R. 4173 also provides for a tough resolution process for failed large financial institutions, preventing the massive taxpayer bailouts we saw over the past year. And it makes credit agencies accountable when they issue misleading ratings on financial products intended to deceive investors.

The AFL-CIO is seeking to improve the bill further as it makes its way through Congress.  AFL-CIO President Richard Trumka told the Financial Services Committee in October that Congress needed to reform the Federal Reserve System to get the big banks out of Reserve Bank boardrooms before it gave the Federal Reserve any more regulatory powers.

Trumka, who joined union members and allies at a rally outside the American Bankers Association meeting in Chicago in October, sent a clear message to bankers: “You work for us.”

Business as usual is over. We are shutting it down. You work for us?not the other way around. Your job is to be stewards of our savings, to put and keep working families in homes, to lend the money companies need to create jobs. And you have failed. You’ve turned the American economy into your own private casino, gambling away our financial future with our money, and driving us to the brink of a second Great Depression?then sticking out your hand for taxpayers to bail you out.

In a separate letter, Wade Henderson and Nancy Zirkin, president and executive vice president, respectively, of the Leadership Conference on Civil Rights (LCCR), laid out the case for the bill:

The need for this legislation could not be more obvious. Years of deregulation have produced a financial system that is a threat to our economy. Rampant abuses in consumer lending practices, combined with a casino mentality on Wall Street and the willful blindness of federal regulators, have plunged our economy into its worst economic crisis since the Great Depression?and it is clear that after an unprecedented taxpayer bailout, Wall Street has not learned its lessons. The fundamental weaknesses in our financial regulatory system must be addressed.

As the bill comes to the House floor, the union movement is mobilizing to make sure our financial system is the servant of the real economy and not its master.

Full post as published by AFL-CIO NOW BLOG on December 10, 2009 (boomark / email).