Monday, April 26, 2010
Consumers Union Urges Senate Support for Strong Financial Reforms
Senate Bill Includes Important Reforms to Protect Consumers & Taxpayers
WASHINGTON, D.C. – As the Senate prepares to start considering a package of financial reforms, Consumers Union calls on lawmakers to enact legislation that establishes a new independent watchdog to protect consumers from unfair industry practices and ensures that taxpayers won’t be forced in the future to rescue banks and Wall Street firms that engage in reckless investments.
“Weak government oversight allowed greedy banks and Wall Street firms to push the nation to the brink of financial disaster and bring about record foreclosures and the loss of millions of jobs and trillions of dollars in retirement savings,” said Gail Hillebrand, Director of Consumers Union’s Defend Your Dollars campaign (www.DefendYourDollars.org). “Now it’s time to make sure consumers get the protection they deserve and taxpayers never have to foot the bill for another Wall Street bailout. We need a strong, independent financial watchdog that has the power to protect consumers against unfair financial products and practices and clear new rules to prevent banks and other financial companies from undermining our economy.”
The Senate bill establishes the Consumer Financial Protection Bureau within the Federal Reserve Board with its own leadership, staff, and budget that will be directly accountable for protecting consumers in the financial services marketplace. The financial reform bill passed last fall in the House went even further by creating a free-standing and completely independent Consumer Financial Protection Agency. Under both the House and Senate bills, states would be allowed to enforce federal and state consumer protection laws and enact even stronger safeguards. For more info, see: http://www.defendyourdollars.org/2010/04/cus_summary_of_the_consumer_fi.html
In addition to a strong independent financial watchdog, Consumers Union highlighted its support for a number of key measures in the Senate reform bill, including:
- An end to “keep the fee, pass the risk” in lending: Making bad loans was a financially rewarding practice during the mortgage boom because brokers, lenders, Wall Street loan packagers, and just about everyone who touched the loan got a fee on the deal while passing the risk of nonpayment on to the next person in the chain. The Senate bill requires that every entity that securitizes loans must keep a material portion of the risk of the loans that are packaged for sale to investors. The amount of risk retained must be at least five percent of the value of the loan unless the loans meet regulatory standards for posing a reduced risk of nonpayment.
- New rules for resolving failing non-bank financial firms: Under the Senate bill, a panel of bankruptcy judges can decide to appoint the FDIC as the receiver of important non-bank financial companies or bank holding companies when they are at risk of failing. The FDIC can fire management, and creditors and shareholders of the failed company will bear the losses not taxpayers.
- New oversight to ensure risky financial companies won’t sink the economy: The Senate bill creates a Financial Stability Oversight Council to monitor overall risks to the economy and to identify non-bank financial companies that will be subject to new oversight by the Federal Reserve Board. The Fed will be charged with establishing and enforcing financial soundness standards for these designated nonbank financial companies and for large, interconnected bank holding companies with over $50 billion in assets. Under the bill, the Fed may require these companies to stop certain activities, sell assets, or comply with other conditions if they are engaged in activities that pose a risk to the financial stability of the U.S.
- Improve day-to-day banking oversight and close regulatory gaps: Consumers Union also supports provisions of the Senate reform bill that allow the new Financial Stability Council to instruct a financial firm’s primary regulator to impose higher standards for activities or practices that could increase the risk of significant liquidity or credit problems in the U.S. financial markets. The bill permits examinations of bank holding companies and their subsidiaries to determine the risks within the bank holding company. And Consumers Union supports a provision of the Senate bill that requires hedge funds to register and to disclose their trading activities, and brings about greater transparency and oversight of the derivatives market.
“Active, ongoing oversight of the financial marketplace is the only way to ensure that consumers won’t be ripped off and that big financial firms won’t be able to continue their risky schemes that can undermine our economy,” said Pamela Banks, Senior Policy Counsel for Consumers Union. “A vote for financial reform is a vote to put an end to predatory financial products and the reckless behavior on Wall Street that put families and our economy at risk.”
David Butler – 202-462-6262 or
Michael McCauley – 415-902-9537