For example, Woodstock Institute and others had requested for years that the Federal Reserve conduct examinations of nonbank subsidiaries of banks that were making predatory mortgage loans. Although the Federal Reserve had authority to conduct such exams, it declined to do so. Now, after these loans caused a global financial crisis and as Congress considers whether to expand or diminish the Fed’s power, the Federal Reserve has announced plans to begin exams of such entities. This is not a coincidence.
In a meeting of the National Community Reinvestment Coalition Board with Fed Chairman Ben Bernanke that I participated in last week at the Federal Reserve, Mr. Bernanke admitted that the Fed had been slow to act. He also professed that he did not oppose the proposed Consumer Financial Protection Agency, which would strip the Fed and other federal banking regulators of rulemaking and enforcement authority on financial products. Mr. Bernanke stated that the Fed was truly dedicated to making consumer protection a higher priority. He seemed sincere and I don’t doubt that he meant it. Given the recent history of Fed inaction to protect consumers, however, it is reasonable to greet such pronouncements with skepticism.
Similarly, Woodstock and other advocates have asked banks for many years to stop gouging customers with high overdraft protection (ODP) fees when there are insufficient funds to cover a check or payment. We have urged federal banking regulators to review these practices and impose consumer protections such as making ODP an opt-in service instead of automatically applying it to customer accounts without their permission. ODP products are one of the likely targets of a new Consumer Financial Protection Agency. Lo and behold, Bank of America, Wells Fargo, and Chase announced in the last week that they are voluntarily changing their ODP practices! This, too, is not a coincidence. Without enactment of a consumer agency, the banks will be free to roll back these new changes when public outrage has subsided.
Advocates and policymakers must see these moves for what they are–attempts to show that regulators and bankers will act in consumers’ best interests and that a consumer-focused agency is not needed. These too little, too late efforts cannot divert us from our goal of real consumer protection and financial reform.