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Consumer Protection & Bank Soundness

posted by Stephen Lubben

To date I've left the issue of the "Consumer Financial Products Safety Commission," or whatever name it ultimately ends up with, to my co-bloggers, who are much more versed in matters consumer. But then today I read that Senator Shelby had this to say at the American Bankers Association:

Safety and soundness trumps everything," Shelby said to loud applause. "It trumps the consumer finance whatever."

Although the bankers apparently ate this up, they should really run from this argument as if it were the swine flu.The argument only makes sense if the nation's banks are so horribly undercapitalized that they depend on the extra margin they get from confusing their customers and getting them to make poor choices regarding their finances. Under the Senator's argument, banks need to conduct "unfair, deceptive, or abusive" advertising and write their documents in "unplain" English in order to maintain their soundness.


This has to be his argument, otherwise the argument makes no sense. In every other respect, the new consumer protection agency should help bankers and their ilk by improving their reputation among consumers and protecting them from class-action lawsuits whenever they foul up. Wouldn't the latter increase their soundness in direct proportion to their decreased insurance premiums? How does consumer protection threaten bank soundness? Did toaster companies go out of business when the Consumer Product Safety Commission stopped letting them sell exploding toasters? I guess the ones who couldn't make it selling legitimate toasters did -- but the Senator can't really be saying that America's banking industry is like a shoddy toaster company, can he?

If the Senator (or, more realistically, a member of his staff) would like to explain what he really meant, I'm available -- feel free to contact me offline.


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Dick Shelby is a severe embarrassment to the people of Alabama. A walking, living, shameful exhibit of the average Alabaman's intelligence.

Ummm.... Obviously a stupid question but - Would banks ultimately be able to survive without the very consumers (and apparently constituents) that Sen. Shelby appears to be less than concerned about?

If an honest-to-dog functioning regulatory entity with teeth had been in place to protect consumers within the last 10 years there is a fair chance that this current "crisis" never would have taken place.

I had a conversation with an agent of one of the alphabet entities last week. According to him, Article 3 of the Uniform Commercial Code is "a technicality". This comment came even after HE cited Indymac Bank F.S.B. v Yano-Horoski in which Judge Spinner wiped out a $500k+ mortgage b/c none of the entities involved could prove standing.

The current regulatory system is broken and/or bought/paid for. Why else would the banking industry collectively be afraid of a "stand alone" regulatory entity? If Congress - and the administration - are not really serious about protecting consumers then stop giving them false hope and let them realize the truth once and for all - they're on their own.

the best I can come up with is related to this, from Pat McCoy's thoughts on the bill posted a few spots down --

> [The] Financial Stability Oversight Council ... could overturn
> any BCFP rule by a 2/3 vote, upon finding that the safety
> and soundness of the U.S. banking system or the stability
> of the financial sector would thereby be placed at risk.

Sen Shelby probably means "Hey boys, the bill ain't that bad because we can use 'safety and stability' to trump the consumer finance bureau / commission / agency." To loud applause from the bankers.

What I can't fathom is why any politician running for reelection would permit him/herself to be seen talking to a bankers' trade group. Who, exactly, does that speech appeal to? What voter out there in this economic climate is going to say "Oh thank God our senator is beloved by the financiers"?

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