Tuesday, September 23, 2008
WASHINGTON, D.C. – Consumers Union, the nonprofit publisher of Consumer Reports, called on Congress in a letter today to protect consumers and taxpayers from the continuing crisis on Wall Street as it works to pass a bailout of the financial sector. Lawmakers are working on an estimated $700 billion bailout of financial institutions that invested in risky subprime mortgage lending products that triggered a record number of home foreclosures and subsequent collapse in the financial markets.
“Millions of Americans have been struggling with the downturn in the economy and now this crisis on Wall Street has families across the country worried about their financial futures,” said Jim Guest, President of Consumers Union. “Congress must take steps to protect consumers and taxpayers as it works to stabilize financial markets rocked by bad business decisions and a crisis in confidence.”
Consumers Union recommended that the multi-billion bailout of the financial sector include the following key protections for consumers:
Help homeowners at risk of foreclosure: Prevent people from losing their homes due to foreclosures. Any financial institution that benefits from the bailout, and any mortgage in which the federal government purchases an interest with taxpayer dollars, must be subject to a mandatory, fast, effective restructuring process. These loans should be designed to keep consumers in their homes and help strengthen neighborhoods.
Give bankruptcy courts power to prevent foreclosures: Give bankruptcy courts the power to alter all mortgages to help people keep their homes.
Protect neighborhoods hit by foreclosures: Help stabilize neighborhoods already hard hit by foreclosures by rehabilitating vacant homes and revitalizing communities.
Stop Excessive Executive Compensation: Executives whose actions have caused the bailout should not reap the benefit of bad decisions. There should be strict limits placed on the severance, bonuses, and stock options and grants these executives receive.
Prevent Bailout Abuse: Grant the government warrants to purchase stock in companies taking advantage of the bailout. This would let taxpayers share in the benefit if companies participating in the bailout turn profitable.
Require greater transparency: For businesses that benefit from the bailout, Congress should require greater transparency of financial firms’ risk management and other business practices.
Be sure we aren’t just postponing the problem: When the government sells these assets back into the market, there should be restrictions on how the debt can be collected, so it doesn’t become a new form of “zombie debt.”
Make everyone who profits responsible: We have to change the way mortgages are made and sold so that everyone who gets a fee also keeps some of the risk of future nonpayment. Everyone getting a fee and passing the buck to the investor was a big part of the current crisis.
Curb abusive credit card practices: Give taxpayers a break too by including credit card reform. Cash-strapped consumers shouldn’t continue to be gouged by excessive credit card rates and fees by the same financial institutions that will benefit from this bailout.
“There must be more reform in the financial and mortgage markets so that this never happens again,” said Guest. “We need to ensure that there is vigorous oversight of this bailout process but we also need a more long-term plan that provides strong new rules and enforcement to avoid future mortgage and credit meltdowns.”