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Group letter to Senator Dodd addressing the need for a strong CFPA

March 22, 2010
The Honorable Christopher Dodd
Committee on Banking, Housing and Urban Affairs
United States Senate
Washington, D.C. 20510
Re: Need for Strong, Independent Consumer Regulator as Part of Financial Reform Legislation being Marked-Up by the Banking Committee
Dear Chairman Dodd:
The consumer, civil rights, labor and community organizations that make up Americans for Financial Reform would like to thank you for offering a comprehensive proposal in the Restoring American Financial Stability Act (RAFSA) to overhaul the nation’s failed consumer financial protection regulatory structure. In order to provide Americans with the strongest possible protections from lending and financial abuses in the future, the consumer regulator must have rule-making autonomy that does not require the approval of any banking regulator, an independent budget and adequate resources, and broad supervisory and enforcement authority over all types of providers of financial services. A new federal consumer regulator also should not replace the essential consumer protection role of the states.
We urge you to retain key provisions of Title X of RAFSA that grant the Consumer Financial Protection Bureau significant autonomy and broad rule-writing authority, delete sections that could allow other regulators to inappropriately veto consumer rules, and strengthen the Bureau’s ability to enforce and supervise all players in the lending marketplace, particularly non-bank lenders and banks with assets of less than $10 billion. We also urge you to provide for a vigorous role for the states to pioneer consumer protection standards and to enforce federal and state consumer laws, and to fill a key gap that leaves consumers without remedies because the Bureau cannot respond to every individual complaint.
I. Regulatory Independence is the Key to Effective Consumer Protection
Existing bank regulators utterly failed to protect consumers from abusive lending practices because they were not independent of the lenders they regulated and because they subordinated consumer protection concerns to a dangerously shortsighted focus on the near-term profitability of these institutions. In fact, the current regulatory system places consumer protection in banking agencies, for which consumer protection is not the primary mission, focus, or expertise. Only the establishment of a robust entity, functionally independent in all respects,
will protect America’s families from unfair or predatory credit and financial products that can ultimately have a destabilizing effect on not only those families, but the economy as a whole. It is simply not “reform” to leave the final word over the rules of the game to the same regulators who ignored consumer problems until they grew so large that they sparked the financial meltdown. That is why Americans for Financial Reform and our member organizations support the creation of a completely independent Consumer Financial Protection Agency.
The RAFSA makes some significant strides in achieving regulatory independence for a Consumer Financial Protection Bureau within the Federal Reserve System. The Bureau would be led by a director who is appointed by the President and confirmed by the Senate and who has the authority to set the Bureau’s budget as needed, up to a pre-established cap. Importantly, the RAFSA does not require that the Bureau get sign off from the banking agencies before it can do its job.
The consumer regulator should not be a subordinate part of the Federal Reserve or any bank regulator. We urge your opposition to amendments 209 and 210 (Shelby) to create non-independent consumer divisions with the Federal Reserve and FDIC. Consumer protection has consistently taken a back seat at the Federal Reserve to its monetary policy and supervision responsibilities. The Federal Reserve infamously refused to use broad rule-writing authority it had for many years to address unfair and deceptive mortgage lending and credit card practices until problems in those markets had harmed tens of millions of consumers and Congress threatened to take its this authority away. The FDIC has only in the last four years taken its consumer protection responsibilities seriously and must always make resolving bank failures its chief priority during periods of crisis.
We urge your support for amendment 263 (Reed) to eliminate the unnecessary and potentially dangerous veto of Bureau regulations by the systemic risk council. Consumer protections reduce, rather than increase, systemic financial risk. It was the lack of adequate consumer protections for nonprime mortgages that started the financial crisis. Any process that permits regulators with a history of indifference or outright hostility to consumer problems to second-guess the Bureau will undermine accountability, impose delay and discourage the Bureau from addressing harmful practices as they are still developing. Several specific provisions in the bill require the Bureau to actively and frequently consult with bank agencies, such as the requirement that the Bureau consult with these regulators prior to proposing a rule and during the public comment process, that it consider prudential concerns when developing rules, and through the traditional judicial review process under the Administrative Procedures Act through which agencies provided input into each other’s proposed rules.
We urge your opposition to amendment 211 (Shelby) to create a Consumer Protection Council consisting of many of the same bank regulators who have failed to protect consumers. Creating a new regulatory bureaucracy, rather than streamlining authority in a single regulator, is a recipe for gridlock, turf battles and inaction.
II. The Bureau Must have Full Authority over the Financial Services Market Without Gaps
The Bureau must be able to take a comprehensive, even-handed approach to consumer protection in financial products and services that avoids the pitfalls of the current system that involves seven different agencies that provide different treatment for different types of financial institutions. The consumer protection regulator must have the power to address unfair, deceptive, or abusive practices that target consumers no matter what type of entity engages in those bad practices. In the recent past, serious problems developed because no one agency had the primary job of looking out for consumers regardless of the type of provider.
We applaud the fact that the bill confers full rule-writing authority over all types of providers of financial products and services, with minimal exceptions. The exemptions in the bill are carefully drawn and should not result in significant gaps in coverage.
We urge you to resist attempts to carve out new exceptions to the Bureau’s authority for auto lending, attorneys, and other industries or for any product or service that affects consumer financial protection. Whether or not particular industries contributed to the current crisis is not the issue. A “Swiss cheese” approach to consumer protection simply cannot respond to the challenges that the future holds. This bill must provide a comprehensive structure for tomorrow’s problems and not merely fight yesterday’s battles.
In addition to rule-writing, the Bureau needs full authority to seek compliance with its rules, through the provision of both supervisory authority and the ability to bring enforcement cases over all those to whom the rules apply. Supervision permits the regulator to address problems early, in a cooperative fashion, and to understand the problems institutions may be facing. Enforcement is the necessary “stick” the Bureau could use to require compliance when cooperative efforts fail.
We applaud several significant provisions that provide the Bureau with broad supervision and enforcement authority. We urge you to oppose attempts to weaken these powers:

  • Nonbank entities involved in the mortgage industry.
  • The very largest banks, those with over $10 billion in assets.
  • The larger nonbanks outside the mortgage industry.
  • However, problems for consumers of financial products and services do not start and stop with the mortgage industry or with the largest institutions. The Bureau also needs strong tools to effectively police the market for non-bank, non-mortgage providers of financial products and services. As we learned with the mortgage lending crisis, bad practices can be pioneered in a market by larger or by smaller participants. If the Bureau is hobbled in addressing harmful conduct of smaller participants, that can create marketplace pressure on their competitors to adopt the same harmful practices.
    We urge your support for amendment 26 (Schumer) to give the Bureau full powers over all nonbank institutions. Payday lenders, auto dealers that sell loans, consumer reporting agencies, debt collectors and many other types of nonbanks, large and small, play critical roles in consumers’ financial lives. The Bureau must have the power to address problems where they arise without gaps in authority. Nonbank enforcement cannot be left to the Federal Trade Commission. The FTC has a small staff to oversee consumer financial protection and no examination powers. It failed to use its authority to address problems in the nonbank sector prior to the financial crisis. It also will not have the expertise that the Bureau will develop over financial consumer protection.
    We also urge your support for amendment 262 (Reed) to give the Bureau back-up enforcement power over banks with less than $10 billion in assets. The $10 billion cutoff leaves enforcement for well over 90 percent of banks completely in the hands of the existing regulators that have a record of enforcement failure. It will give the same modest back-up authority to the Bureau conferred in the House bill to bring cases after receiving consumer complaints or if a recommendation arising out of an examination is ignored after 120 days. We strongly urge that the supervision and enforcement provisions regarding small banks be strengthened. That is why Americans for Financial Reform and our member organizations support the creation of a completely independent Consumer Financial Protection Agency with full enforcement and supervisions authority and urge support for amendment 57 (Reed) to create such an agency.
    We urge support for Senator amendment 97 (Merkley) to provide enforcement of rules through existing statutes. The current federal consumer protection statutes generally have provisions to make injured consumers whole. But new rules that are written under the new authority over unfair, deceptive or abusive practices will give consumers no ability to protect themselves. The Bureau will not be able to address anything close to every complaint. Senator Merkley’s amendment partly closes this gap by providing that violation of a rule addressing consumer credit, for example, would be treated as a violation of the Truth in Lending Act.
    We urge your opposition to amendment 212 (Shelby) to prohibit the Bureau from regulating loan underwriting. This amendment would prohibit the Bureau from, for example, enforcing existing rules mandating that borrowers have the ability to repay mortgage loans and similar provisions of the Credit CARD Act targeting predatory lending aimed at students. A key lesson of the financial crisis is that it is a mistake to allow regulators focused mainly on bank profitability to determine whether lenders are protecting consumers by offering loans based on their ability to repay the loans. Bank regulators were apparently so blinded by the short-term profit boost provided by abusive lending that they ignored the long-term harm these loans would cause borrowers or financial institutions. To reward bank regulators who have a horrific track record on this issue with sole underwriting authority is shocking and dangerous.
    We urge you to oppose amendments 214 (Shelby) and 304 (Corker), which deprive the Bureau of authority to issue rules on unfair arbitration practices. Few practices are as abusive, unfair and deceptive as the widespread use of forced arbitration, which allows wrongdoers to escape accountability in our justice system by steering cases to a biased, secretive and lawless forum that they control. These amendments would relegate the Bureau to studying arbitration without any authority to issue rules to address problems uncovered with the study. Both the Administration’s proposal and the House-passed bill recognized the fact that forced arbitration has already been found to be harmful to consumers and investors; the Senate bill should similarly protect consumers and allow the Bureau and the SEC to issue rules limiting forced arbitration within an expeditious and timely manner.
    III. States Must be Full Consumer Protection Partners
    States have an essential constitutional and practical role in protecting their citizens. States are our nation’s first responders when new threats target consumers. States can act before local problems become national ones and can protect honest competitors who are pressured to follow the practices of less scrupulous players. The mortgage crisis, for example, started in the nonbank sector but then spread to institutions that the states could not touch. In 2006, the peak year of toxic mortgage lending, nationally chartered banks or thrifts and their subsidiaries made 32 percent of subprime loans, 40 percent of alt-A loans, and 51 percent of the toxic payment-option and option ARM loans.
    We urge you to retain the strengths of the bill with respect to the role of the states in this area, in particular:

  • No preemption for nonbank subsidiaries.
  • Attorney general authority to enforce non-preempted state law against banks.
  • Attorney General enforcement of Bureau rules.
  • Bureau rules as a floor, not a ceiling, except where preempted as to national depositories.
  • The bill also takes extremely modest steps to curtail the excessive efforts of bank regulators to wipe out state consumer protection law by requiring the OCC to determine that a law actually imposes a significant interference with banking before preempting.
    We urge your opposition to amendment 318 (Corker), which would eliminate all of these provisions of the bill.
    We urge your support for amendment 264 (Reed), which returns to the system in place during most of this nation’s first 200 years, when national banks were expected to comply with state laws. This amendment protects nationally chartered banks and thrifts from laws that discriminate against them, while otherwise generally applying state law. Preemption undermines our federal system and is a barrier to effective government responses to the real problems of real people.
    IV. Other Amendments to Watch
    We also urge your support for these important strengthening amendments:

  • #29 (Schumer): Establishes a nonprofit Financial Consumer Association for purposes of informing and representing financial services consumers.
  • #73 (Menendez): Makes permanent CDFI Fund’s Financial Education and Counseling Program.
  • #91 (Merkley): Prevents evasions of the $10 billion asset standard for Bureau enforcement and supervisions by aggregating assets of bank affiliates.
  • #93 (Merkley): Adjusts the Truth In Lending Act’s 1968 jurisdictional limits for inflation to bring most consumer auto loans and consumer credit cards back under the Act and gives Bureau authority to adjust dollar limits in the Act for inflation.
  • #96 (Merkley): Requires national banks to comply with the interest rate laws of the consumer’s state.
  • #99 (Merkley): Adjusts statutory maximum check hold times for inflation and modern technology.
  • #100 (Brown): Ensures that the Bureau and other regulators respond to complaints, and establishes Private Loan Ombudsman
  • #102 (Brown): Protects consumers by ensuring that a credit card holder’s decision to close a account when terms are changed does not trigger a decrease in their credit score.
  • #125 (Akaka): Provides clear disclosures to protect remittance transfers.
  • #267 (Reed): Instructs HUD to recommend a national default and foreclosure database.
  • We urge your opposition to these weakening amendments:

  • #270 (Kohl): Broad exclusion of regulated persons acting in a fiduciary capacity from Bureau oversight.
  • #251 (Bennett): Remedies a false “conflict” between the Fair Debt Collection Practices Act and judicial rule and permits unfair attorney debt collection practices.
  • #253 (Bennett): Deprives the Bureau of authority over various types of consumer financial products and services.
  • #305 (Corker): Removes authority to deal with abusive practices and deletes definitions of unfairness and abusive.
  • #306 (Corker): Imposes unnecessary paperwork burdens on the Bureau regarding its reports to Congress.
  • #307 (Corker): Deprives the Bureau of funds for consumer education and financial literacy and imposes
  • unnecessary paperwork burdens.

  • #310 (Corker): Deprives the Bureau of supervision and enforcement authority over the affiliates of the largest banks and credit unions.
  • #315 (Corker): Removes the authority to require that the risks and benefits of products be fully, accurately and effectively disclosed.
  • #317 (Corker): Permits persons to enforce or attempt to enforce illegal contracts for unlawful products or services.
  • #324 (Corker): Imposes more burdens on the Bureau’s rulemaking process and additional hurdles on judicial review beyond those imposed on other agencies.
  • #450 (Johanns): Exempt all business to business contracts, even those that affect how the two businesses will treat their consumers.
  • As the Committee approaches mark-up on this legislation, it is clear that crucial decisions that are made within the next few days and weeks could determine the structure and effectiveness of consumer protection regulation for many decades. With so much at stake for Americans, we strongly urge you to ensure that the consumer financial protection regulator is independent, has broad authority to regulate all financial services providers and has strong enforcement and supervision powers.

    Americans for Financial Reform

    All the organizations support the overall principles of AFR and are working for an accountable, fair and secure financial system. Not all of these organizations work on all of the issues covered by the coalition or have signed on to every statement.

    National Organizations

    A New Way Forward



    Adler and Colvin



    Alliance For Justice

    American Family Voices

    American Income Life Insurance

    Americans for Democratic Action, Inc.

    Americans for Fairness in Lending

    Americans United for Change

    Business for Shared Prosperity

    Calvert Asset Management Company, Inc.

    Campaign for America’s Future

    Campaign Money

    Center for Digital Democracy

    Center for Economic and Policy Research

    Center for Economic Progress

    Center for Responsible Lending

    Center for Justice and Democracy

    Center of Concern

    Change to Win

    Clean Yield Asset Management

    Coastal Enterprises Inc.

    Color of Change

    Common Cause

    Communications Workers of America

    Community Development Transportation Lending Services

    Community Law Center

    Consumer Action

    Consumer Association Council

    Consumers for Auto Safety and Reliability

    Consumer Federation of America

    Consumer Watchdog

    Consumers Union

    Corporation for Enterprise Development

    CREDO Mobile

    CTW Investment Group


    Economic Policy Institute

    Essential Action

    Green America

    Greenlining Institute

    Good Business International

    HNMA Funding

    Home Actions

    Housing Counseling Services

    Information Press

    Institute for Global Communications

    Institute for Policy Studies: Global Economy Project

    International Brotherhood of Teamsters

    Institute of Women’s Policy Research

    Krull & Company

    Laborers’ International Union of North America

    Lake Research Partners

    Lawyers’ Committee for Civil Rights Under Law

    Leadership Conference on Civil Rights

    MoveOn.org Political Action



    National Association of Consumer Advocates

    National Association of Investment Professionals

    National Association of Neighborhoods

    National Coalition for Asian Pacific American Community Development

    National Community Reinvestment Coalition

    National Consumer Law Center (on behalf of its low-income clients)

    National Consumers League

    National Council of La Raza

    National Fair Housing Alliance

    National Federation of Community Development Credit Unions

    National Housing Institute

    National Housing Trust

    National Housing Trust Community Development Fund

    National NeighborWorks Association

    National Training and Information Center/National Peoples Action

    National Council of Womens Organizations

    Next Step

    OMB Watch

    Opportunity Finance Network

    Partners for the Common Good

    National People’s Action (NPA)


    Progress Now Action

    Progressive States Network

    Poverty and Race Research Action Council

    Public Citizen

    Responsible Endowments Coalition

    Sargent Shriver Center on Poverty Law

    Scam Victims United


    State Voices

    Taxpayer’s for Common Sense

    The Association for Housing and Neighborhood Development

    The Carrots and Sticks Project

    The Fuel Savers Club

    The Seminal


    Union Plus

    United for a Fair Economy

    U.S. PIRG

    Unitarian Universalist for a Just Economic Community

    United Food and Commercial Workers

    United States Student Association


    Veris Wealth Partners

    Veterans Chanmber of Commerce

    We The People Now

    Western States Center

    Woodstock Institute

    Working America

    World Privacy Forum

    State Organizations

    9 to 5, the National Association of Working Women (CO)

    Alaska PIRG

    Arizona PIRG

    Arizona Advocacy Network

    Arizonans for Responsible Lending

    Association for Neighborhood and Housing Development (NY)

    Audubon Partnership for Economic Development LDC (New York, NY)

    BAC Funding Consortium Inc. (Miami, FL)

    Beech Capital Venture Corporation (Philadelphia, PA)

    Bell Policy Center (CO)

    California PIRG

    California Reinvestment Coalition

    Center for Media and Democracy

    Century Housing Corporation (Culver City, CA)


    Chautauqua Home Rehabilitation and Improvement Corporation (NY)

    Chicago Community Loan Fund (Chicago, IL)

    Chicago Community Ventures (Chicago, IL)

    Chicago Consumer Coalition

    Citizen Potawatomi CDC (Shawnee, OK)

    Coalition on Homeless Housing in Ohio

    Colorado AFL-CIO

    Colorado PIRG

    Colorado Center on Law and Policy

    Community Action of Nebraska

    Community Capital Development

    Community Capital Fund (Bridgeport, CT)

    Community Capital of Maryland (Baltimore, MD)

    Community Development Financial Institution of the Tohono O’odham Nation (Sells, AZ)

    Community Redevelopment Loan and Investment Fund, (Atlanta, GA)

    Community Reinvestment Association of North Carolina

    Community Resource Group (Fayetteville, AR)

    Connecticut Association for Human Services

    Connecticut PIRG

    Consumer Assistance Council

    Cooper Square Committee (New York, NY)

    Cooperative Fund of New England (Wilmington, NC)

    Corporacion de Desarrollo Economico de Ceiba (Ceiba, PR)

    CWA 7777 (CO)

    Delta Foundation, Inc. (Greenville, MS)

    Economic Opportunity Fund (EOF) (Philadelphia, PA)

    Empire Justice Center (NY)

    Enterprises, Inc., Berea KY

    Fair Housing Contact Service OH

    Federation of Appalachian Housing Enterprises, Inc. (Berea, KY)

    Fitness and Praise Youth Development, Inc. (Baton Rouge, LA)

    Florida Consumer Action Network

    Florida PIRG

    Forward Community Investments (Madison, WI)

    Funding Partners for Housing Solutions (Ft. Collins, CO)

    Georgia PIRG

    Grow Iowa Foundation (Greenfield, IA)

    Homewise, Inc. (Santa Fe, NM)

    Idaho Chapter, National Association of Social Workers

    Idaho Community Action Network

    Idaho Nevada CDFI (Pocatello, ID)

    Illinois PIRG

    Impact Capital (Seattle, WA)

    Indiana PIRG

    Information Press (CA)

    Iowa PIRG

    Iowa Citizens for Community Improvement

    JobStart Chautauqua, Inc. (Mayville, NY)

    Keystone Research Center

    La Casa Federal Credit Union (Newark, NJ)

    Low Income Investment Fund (San Francisco, CA)

    Long Island Housing Services NY

    MaineStream Finance (Bangor, ME)

    Maryland PIRG

    Massachusetts Consumers’ Coalition

    Massachusetts Fair Housing Center



    Midland Community Development Corporation (Midland, TX)

    Midwest Minnesota Community Development Corporation (Detroit Lakes, MN)

    Mile High Community Loan Fund (Denver, CO)

    Missouri PIRG

    Montana Community Development Corporation (Missoula, MT)

    Montana PIRG

    Mortgage Recovery Service Center of L.A.

    Neighborhood Economic Development Advocacy Project

    New Hampshire PIRG

    New Jersey Community Capital (Trenton, NJ)

    New Jersey Citizen Action

    New Jersey PIRG

    New Mexico PIRG

    New York PIRG

    New York City AIDS Housing Network

    Next Step (MN)

    NOAH Community Development Fund, Inc. (Boston, MA)

    Nonprofit Finance Fund (New York, NY)

    Nonprofits Assistance Fund (Minneapolis, MN)

    North Carolina Association of Community Development Corporations

    North Carolina PIRG

    Northern Community Investment Corporation (St. Johnsbury, VT)

    Northside Community Development Fund (Pittsburgh, PA)

    Ohio Capital Corporation for Housing (Columbus, OH)

    Ohio PIRG

    Oregon State PIRG

    Our Oregon


    Piedmont Housing Alliance (Charlottesville, VA)

    Rhode Island PIRG

    The Rocky Mountain Peace and Justice Center

    Rural Community Assistance Corporation (West Sacramento, CA)

    Rural Organizing Project OR

    San Francisco Metropolitan Transportation Authority

    Seattle Economic Development Fund dba Community Capital Development

    SEIU Local 105 (Colorado)

    Siouxland Economic Development Corporation (Sioux City, IA)

    Southern Bancorp (Arkadelphia, AR)


    The Association for Housing and Neighborhood Development

    The Fair Housing Council of Central New York

    The Help Network

    The Loan Fund (Albuquerque, NM)

    Third Reconstruction Institute (NC)

    V-Family, Inc.

    Vermont PIRG

    Village Capital Corporation (Cleveland, OH)

    Virginia Citizens Consumer Council

    Virginia Poverty Law Center

    War on Poverty – Florida


    Westchester Residential Oppurtunities Inc. NY

    Wigamig Owners Loan Fund, Inc. (Lac du Flambeau, WI)


    For the letter in a PDF format, click here.