Neglect and Inaction: An Analysis of Federal Banking Regulators’ Failure to Enforce Consumer Protections

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Published: July 13, 2009

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For too long the responsibility for protecting consumers has been fragmented among various federal regulators whose primary focus was the safety and soundness of the banking system.  Consumer protection often went neglected, if anything, an afterthought or a box to check. 

Federal regulators' failure to restrain abuses that led to today's credit crisis demonstrates the need for a single agency focused on protecting consumers to ensure financial institutions flourish in a sustainable way. To succeed in protecting consumers, this agency must have the complete set of tools necessary, which are now spread across different agencies. This agency will need: the power to write rules, the ability to examine all financial institutions to ensure they are complying with the rules, and the power to enforce the law when those rules are violated.  A consolidated single agency focused on consumer protection will also benefit financial institutions. Financial institutions will be able to rely on a single baseline of protections for all providers, which will eliminate regulatory arbitrage on one hand and a race to the bottom to compete with the worst lenders on the other. 

Congress is considering creating such an agency, the Consumer Financial Products Administration (CFPA).