Democrats have a control issue. They passed a national energy tax to help control what types of cars we can drive. Democrats announced a plan that allows the government to control what doctors we can see and when we can see them. Now, Democrats want to create a new government bureaucracy to control which — if any — credit cards, mortgages and consumer loans we are allowed to receive. Yes, there’s a troubling trend.
Conservatives, however, are poised to fight for consumer protection and to ensure that decisions that belong in the hands of America’s families and small businesses are not dictated instead by Washington.
HR 3126 would create a new bureaucracy run by five unelected individuals appointed by the president. The ironically named Consumer Financial Protection Agency (CFPA) would have the power to strip from consumers their freedom of choice and restrict their credit opportunities in the midst of a financial recession — all in the name of “consumer protection.” Positively Orwellian.
Representing one of the great assaults on consumer rights (not to mention transfers of power from Congress to the executive branch), this agency would possess sweeping powers to ban or modify any home mortgage, credit card, personal loan or other “consumer financial product” it subjectively deems to be “unfair” or “abusive.” If the mortgage that would allow you to be a homeowner is deemed “unfair,” you’d better find another one. If the credit card you choose for your family is “abusive,” you might find yourself paying cash.
Proponents say this agency will work like the Consumer Product Safety Commission, which they credit for ensuring our toasters don’t blow up. The parallel doesn’t work. No one wants a toaster that blows up, and whether it does is largely out of our control. Many Americans, however, may want an adjustable rate mortgage because they could not otherwise become homeowners. If we act responsibly, whether the mortgage blows up on us is largely within our control.
The CFPA will further harm consumers by stifling innovation. It is doubtful how many financial firms will choose to invest in research, development and consumer testing on new products, only to discover later the CFPA deems them to be “unfair” and thus unlawful. Had the CFPA existed 25 years ago, we would probably have no ATMs, frequent-flyer miles or debit cards. Functionally, a new federal bureaucracy will now be in charge of research, development and product approval for almost all new consumer-financial products.
Another byproduct will be less competitive markets. Smaller and regional firms cannot afford the legal and regulatory burden of CFPA. Contraction in community financial institutions will accelerate when they lose their ability to customize their products and compete with the large financial institutions.
Small businesses, the job engine of America, will be hurt by this proposal, too. Although the plan proposes to restrict only “consumer financial products,” according to the Federal Reserve, 77 percent of all small businesses use credit cards to help finance their businesses. An erosion of risk-based pricing and CFPA credit customization will naturally exacerbate a credit contraction already under way and kill jobs.
The CFPA says to the American people, “You are simply too ignorant or too dumb to be trusted with financial products.” Proponents claim disclosures for some financial products are too complicated for people to understand and that bad apples in the credit markets try to confuse consumers to make a quick buck. They are right.
That’s why House Republicans have developed a regulatory reform plan that will simplify consumer disclosures and bolster the anti-fraud protection efforts of existing federal agencies. For too long, government mandates or lawsuit fears have encouraged companies to provide voluminous disclosure, often written in legalese.
Our plan will force financial-services providers to make their disclosure more transparent, in plain English, so that the days of indecipherable fine-print booklets will be a thing of the past. It would also reauthorize the federal government’s Financial Crimes Enforcement Network, FinCEN, specifically to go after financial crimes such as residential mortgage fraud, reports of which have increased more than 1,700 percent this decade, that have been overlooked while authorities have shifted focus to terrorist financing and other high-profile crimes.
As with any transaction, the cornerstone of consumer protection must be personal responsibility. Through enhanced choice and a robust free market, we believe that well-informed consumers will always be the best judge of what financial products are appropriate for their needs, not a nanny-state government panel like the CFPA.
Let’s protect consumers from force and fraud, let’s empower them with effective and factual disclosure, and let’s give them opportunities to enjoy the benefits of product innovations like automated teller machines and online banking. But let’s not constrict - under the guise of safety - their credit opportunities at a time when they need that the most.
A government agency, no matter how well-intended, cannot be a complete substitute for personal responsibility. Consumers should fight for their rights and reject the false promises of the CFPA. Conservatives think thatOE nothing less than your financial freedom is at stake.
• Rep. Jeb Hensarling, Texas Republican, is the lone sitting member of Congress on the Congressional Oversight Panel for the Troubled Asset Relief Program and the top Republican on the House Financial Services subcommittee on financial institutions and consumer credit.