Do We Need a Consumer Protection Agency?

As the Senate continues to debate financial reform, the issue of whether to create an independent consumer protection agency has become a key point of contention. In a special roundtable, experts weigh in on whether a new agency should be created.

February 19, 2010
PBS News Hour - View this and other responses
Amanda Engstrom

As we struggle to get the economy moving again, we must ensure that our efforts to fix the financial system help protect consumers and investors and do not actually make things worse. Unfortunately, that's exactly what will happen if Congress approves legislation creating the Consumer Financial Protection Agency. Specifically, there are four major problems with this legislation.

First, the CFPA is not limited to, nor even targeted at, credit cards and mortgages. The CFPA would have power over businesses that are non-financial in nature and that have, at best, a tangential relationship to consumer finance. Additionally, the bill the Senate is considering would require that the CFPA regulate any business that extends credit in which a finance charge is imposed, or in which more than four payments are allowed over time. This would encompass businesses across the country that provide flexible payment plans to their customers. In addition, businesses that simply contract for goods or services with firms that offer consumer financial products would be under the CFPA's authority — including advertisers, technology companies and data processers. As such, rather than keep the agency's focus on the areas where risk to consumers is highest, the CFPA will become an overly broad and massive new agency with an expansive, ill-defined mission.

Second, the CFPA doesn't consolidate regulations — in fact, most of the businesses referenced above are already regulated by the Federal Trade Commission, which will retain its authority.

Third, the CFPA sets the floor for consumer protection laws — allowing the 50 states to pass their own laws that may conflict with the CFPA and with each other. In addition, state attorneys general can enforce the CFPA laws based upon their own interpretation. This means a lot of overlapping, confusing, and conflicting rules, which makes little sense in light of the need to simplify disclosures to consumers.

Lastly, the CFPA would have very broad and vague regulatory authority to limit or prohibit products that are "abusive," but no one knows what that means. And businesses that want to comply won't know what that means, leaving them in a guessing game about whether they're in compliance. This should provide little comfort to consumers, and creates significant disincentives for financial institutions to lend to the consumers and small businesses most in need of credit these days.

We need better ways to protect consumers. The CFPA, however, would do a great deal of economic harm to consumers and to our economy without ensuring new protections or solving legitimate shortcomings in our financial system. Congress and the administration should go back to the drawing board.