President's Focus Shifts Back to Financial Reform, Consumer Protection

President Barack Obama used the occasion of the one-year anniversary of the Lehman Brothers collapse to renew calls for an overhaul of the regulatory structure that governs the nation’s financial system.

“Instead of learning the lessons of Lehman and the crisis from which we're still recovering, they're choosing to ignore those lessons,” Obama said. “I'm convinced they do so not just at their own peril, but at our nation's.  So I want everybody here to hear my words:  We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.  Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

“And that’s why we need strong rules of the road to guard against the kind of systemic risks that we've seen,” Obama continued. “And we have a responsibility to write and enforce these rules to protect consumers of financial products, to protect taxpayers, and to protect our economy as a whole.”

The President has proposed:

• The creation of a Consumer Financial Protection Agency (CFPA) to protect consumers from predatory financial products
• Providing the Federal Reserve with greater power to regulate financial firms that pose a systemic risk to the financial system. There would also be an oversight council to police gaps in regulation and to share information among different regulators.
• Global reform of financial oversight
  

Many of the proposed regulations will focus on complicated financial instruments, such as derivatives, and will have a very narrow application. But the accounts receivable management industry is closely monitoring the power of the CFPA, as it may be the collection industry’s new regulator (“Proposed Consumer Financial Protection Agency May Oversee FDCPA Enforcement,” June 25).

The American Bankers Association supports many of the proposals.

“Since last fall, in Congressional testimony and elsewhere, ABA has called for comprehensive regulatory reform including many issues covered in the Administration’s proposal,” the ABA said in a prepared statement.  “We believe regulatory reform is badly needed, and Congress should move to adopt such reforms. ABA has testified in favor of creating a systemic regulator, providing a mechanism for resolving troubled firms deemed ‘too big to fail,’ closing gaps in the regulation of non-banks and improvements in consumer protection.  We will continue to strongly advocate for legislation that focuses on these critical issues.”

However, the ABA did offer some cautionary sentiments about system oversight: “Among the recommendations ABA is making are to avoid an expansive new bureaucracy for consumer issues that would conflict with the prudential regulator, maintaining the thrift charter and strengthening the resolution mechanism.”

Offering a slightly different view was the Independent Community Bankers of America, Washington, D.C., which represents the nation’s smaller banks – representing a majority of the nation’s more than 8,000 banks, though most have assets under $500 million.