Consumer Law

Take consumer watchdog off the Fed's leash: Sen. Chris Dodd's bill will weaken a critical new agency

By Jeff Sovern

by Jeff Sovern

I have an op-ed in today's New York Daily News on the placement of the consumer financial protection bureau within the Fed.  Here are the first three paragraphs:

Just imagine that years before the subprime crisis hit, Congress had directed a federal agency to prohibit unfair or deceptive mortgage loans, as well as abusive practices in home refinancings. Would we have had all those loans that later blew up, leading to the Great Recession?

Now suppose the same agency had been charged with creating forms that would help borrowers understand what their monthly payments would be, so that borrowers could avoid taking out loans that they would later find unaffordable. Would the economy be just as bad as it is now?

The answer is yes. How do we know this? Because we had such an agency. It's called the Federal Reserve. But the Fed didn't use its powers to bar bad mortgage loans until 2008, far too late to prevent the Great Recession. Similarly, the disclosures it required mortgage originators to provide did not correctly state borrowers' monthly payments, making it far harder for borrowers to figure out whether they could make those payments.

Full post as published by CL&P Blog on March 25, 2010 (boomark / email).