The Obama Administration sent legislation to Congress this week aimed at creating a Consumer Financial Protection Agency. This 152-page draft hopes to protect consumers from the crooked and deceitful business practices so many of us encounter when dealing with financial institutions. The Administration’s goal is to provide consumers “with simple, transparent and accurate information on financial products like credit cards and mortgages and also do a better job of protecting them against unscrupulous practices.” Administration sends Congress consumer legislation, AP 06/30/2009.

Is this legislation enough to let the financial institutions know we are all fed up with their business practices? Like many things, that will have to be left to be seen but it is a start. The financial laws in the U.S. have not had a major rewrite since around the Great Depression so, considering the times, a revision is due. My concern is that this agency will just become another government bureaucracy that will be so large and slow moving it won’t help anyone until it’s too late (I’m talking about you SSA, VA, Treasury, and others). It is not enough to simply rewrite the laws, there has to be some enforcement mechanism in place that allows people to get the help they need. At the risk of sounding self-serving, I suggest a civil cause of action that allows the consumer, or the consumer’s attorney, to seek damages against the financial companies if they don’t follow the rules.

A similar scenario can be found in the Fair Debt Collection Practices Act and its state equivalents. FDCPA, 15 U.S.C. §§ 1692-1692p (2006); MDCPA, MCL 445.251 et seq. There were problems with the way creditors were collecting debts, congress passed a law regulating how creditors could go about collection, and, instead of leaving the enforcement to a government agency, they created a cause of action that allows debtors to seek damages, fees, and costs.

As expected, the financial companies are vehemently opposed to this legislation, claiming it will stifle the development of new products. I’m convinced that what they are really worried about is that they will have to put the terms of their new products in language that the consumer will understand and that hopefully the consumer will evaluate whether they can afford to repay the product. The mortgage companies successfully killed H.R. 1106 which would have allowed Chapter 13 Bankruptcy Judges to modify mortgages so maybe the banks can kill this legislation . . . . but I hope not.