Three years ago, the financial giant Lehman Brothers filed for bankruptcy. That stunning development accelerated the American financial crisis, which left world markets reeling--and American consumers staggered by foreclosures, shrunken retirement funds and the inability to get small business loans among other consumer shock waves.
While the economic downturn hit the United States like a “tsunami,” said Deborah Goldberg, director of National Fair Housing Alliance, “for communities of color, it started much earlier.” She spoke at a media teleconference held Sept. 15, by New America Media (NAM) on “Money, Housing and the Racial Wealth Gap -- What's at Stake for Communities of Color?”
The fair-housing alliance is concerned because many of the foreclosures still forcing people out of their homes could have been avoided if mortgage brokers had been barred from making false marketing claims.
However, said Goldberg, the Consumer Financial Protection Bureau (CFPB) “is the bright spot in this gloomy picture. It has the ability to reform the financial system.”
The new bureau’s website states the agency will be “a cop on the beat making sure that every lender will follow the same rules, working to fix the broken consumer credit market and to help prevent a future economic crisis.”
Heated Congressional Debate
Congress created CFPB in July, 2010 ,as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act named for former Sen. Christopher Dodd, D-Conn., and current Rep. Barney Frank, D-Mass. But the agency’s management and funding are now the topic of heated congressional debate.
But Republican objections to the agency forced President Obama to delay his nomination to head the bureau until this July.
Previously, the president wanted to appoint Harvard University law professor and consumer advocate Elizabeth Warren. She developed the concept of an agency to guard public financial interests similar to the Consumer Products Safety Commission, and was widely viewed as the top choice to head the CFPB. But GOP opposition was unshakable and she withdrew her name for consideration.
Last week Warren announced her candidacy in Massachusetts to run against GOP Sen. Scott Brown for the U.S. Senate seat long held by the late Sen. Ted Kennedy.
This July, Obama announced his new choice to direct the agency, former Ohio Attorney General Richard Cordray. But he has yet to be confirmed by the Senate.
Many are concerned that GOP leaders are delaying the agency from beginning its work until the administration agrees to changes housing- and economic-rights advocates say would weaken the CFPB’s power to protect consumers.
GOP Cries Foul
In a letter to President Obama in May, 44 Republican Senators stated their “commitment to fix the poorly-thought out structure of this agency that will have unprecedented reach and control over individual consumer decisions.”
Reforms the GOP proposed would be “necessary before we will consider any nominee to head this agency,” wrote Senate Minority Leader Mitch McConnell, R-Ky.
McConnell’s communications director, Michael Brumas, said in an interview, “The issue is not the nominee. The issue is the bureau’s serious lack of transparency and accountability to the American people.”
And at a key committee hearing on Cordray’s nomination earlier this month, Sen. Richard C. Shelby, R-Ala., chided the president and congressional Democrats, for making no “effort to work with us to improve the accountability of the bureau.”
Shelby asserted, “There is no meaningful check on the director’s authority.” He added, “No one person should have so much unfettered power over the American people. Unless the bureau is reformed, it is only a matter of time before this concentration of power is abused or misused to the detriment of American consumers and the economy,” he said.
But economic rights advocates, such as Preeti Vissa, director of community reinvestment with the Greenling Institute, based in Berkeley, Calif., stated, “CFPB operates under a lot of checks and balances, including many that apply to no other regulatory body. Not only can the president remove the director for cause anytime, the director is required to make detailed reports to both houses of Congress,” she said during the NAM teleconference.
She explained, “CFPB is required by law to consult with other regulatory agencies before it issues rules aimed at barring deceptive or unfair practices or even to simply administer federal financial laws. Unlike other regulatory agencies, CFPB's budget is capped by law. There is no other federal regulatory body that can have its rules overridden by other regulators,” said Vissa.
Yet while the debate continues over determining CFPB’s direction, advocates say that a comprehensive consumer protection program is essential for communities that were hardest hit in the recession.
“Consumer Protection Necessary”
Goldberg of the fair-housing alliance stressed the need for public supervision of the banking industry, and she urged strong enforcement of the federal Equal Credit Opportunity Act. Especially vulnerable, she added, are communities of color, which were disproportionately affected by predatory lending and foreclosures, major concerns of the new consumer bureau.
This summer, CNN reported that the Federal Reserve hit Wells Fargo Bank with “a record fine of $85 million, for allegedly pushing borrowers with good credit into expensive mortgages and falsifying loan applications.”
A study by the Center for Responsible Lending of foreclosures and lending by race and ethnicity showed that since 2006, 17 percent of Latinos and 11 percent of African-American homeowners have lost or are at imminent risk of losing their home, compared to 7 percent of non-Hispanic whites.
Vissa said this is especially important because, “Latinos invest 66 percent of their wealth into their homes, and African Americans invest 63 percent, compared to about 38 percent for whites.”
Another key issue, said Paheadra Robinson, director of the Consumer Legal Resource Center during NAM’s media tele-briefing, is the “necessary monitoring of the payday-lending industry.”
“The payday-lending industry earns $30 billion every year," she said. “It is minimally regulated, and payday loan centers are strategically placed” largely in communities of color. She noted a report titled “Credit Segregation: Concentrations of Predatory Lenders in Communities of Color,” released earlier this year by National People’s Action.
“These are communities that are facing higher levels of poverty,” she said.
A debate before the full Senate regarding Richard Cordray’s confirmation and the CFPB is expected to be held later this month in Washington.
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