Our current financial crisis has spawned an astounding amount of state and federal legislation aimed squarely at the financial services industry. Legislators are determined to prevent us from making the same mistakes twice, and are vowing to protect consumers from what they refer to as "predatory lending". But how far should these new policies reach? At what point do we consider that government regulation has overstepped the boundaries of private business?
It seems that legislators have tried to tackle all of the financial sector issues at once. From Big bank bailouts, to corporate compensation, to an all out assault on short term lending. No doubt that many of these areas need further regulation and intervention, but it's important that we write laws that make sense for consumers as well as the entities that serve them. The general public will continue to need access to credit and it is imperative that we write smart policies that encourage responsible lending to responsible individuals.
Consumer Financial Protection Agency (CFPA)
In October we saw this proposed agency clear a major hurdle. Its passage through the US House of Representatives moves it one step closer to becoming the agency that will take financial sector reform head-on. It will be responsible for rules regarding credit cards and other financial services products as well as the pursuit of sweeping changes to the short-term lending industry. But many feel that the agency's power will be too broad. And with a growing list of exemptions and loopholes, is this new agency truly protecting the consumer or will it cater to special interest groups?
Short Term Lending Changes
A major focus of the CFPA will be the continued regulation and possible elimination of the payday lending industry. This type of short term lending is considered to be "abusive" and "predatory" by many lawmakers and has been cited as a key reason Congress needs to create a separate watchdog for consumer financial products. Additionally, attention is shifting to the regulation of bank overdraft fees and other financial industry charges.
The current financial crisis makes it easy to see that we are in need of substantial industry reform. It will take our best financial minds to devise long-term solutions for our current issues. The only workable fixes are those that create a fair marketplace for both financial institutions and consumers. Above all, lawmakers must focus on the passage of regulations that get credit into the hands of people and organizations that need it.