Dodd Endorses Creation of Consumer Financial Products Agency
Friday, June 12, 2009
Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, yesterday announced his support for the creation of a new agency with broad authority to protect consumers of financial products such as mortgage loans and credit cards.
The Obama administration plans to propose such an agency next week as a key piece of its agenda for the reform of financial regulations. Dodd, whose committee will play a crucial role in legislating those reforms, had reserved judgment until now.
The new office would strip away a major part of the responsibilities of the federal agencies that regulate banks, particularly the Federal Reserve. Consumer advocates and many members of Congress have said the Fed's failure to enforce existing laws was a key cause of the financial crisis because firms could sell products that consumers could not afford.
For example, the Fed waited until last summer to restrict mortgage-lending practices such as penalizing borrowers for attempting to refinance loans before an interest-rate adjustment and issuing loans without verifying the borrower's income. By then, defaults on millions of loans issued on those terms already were contributing to a meltdown of financial markets.
"The economic mess we're in is rooted in a spectacular failure of consumer protection," Dodd said in a statement.
The statement added that the Fed "failed for over 14 years to put an end to the predatory mortgage lending practices that led to the financial crisis."
The Fed declined to comment. But regulators and industry representatives have quietly started to make the case that a new agency would be even less effective at protecting consumers and that strengthening the role of the existing agencies is a better approach.