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Posted by on Nov 17, 2009 in Economy | 3 comments

Advocating For A Consumer Financial Protection Association

Amelia Tyagi, on Marketplace today, arguing that a Consumer Financial Protection Association could help level the playing field and force banks to be honest with their customers:

Once upon a time, banking was a pretty boring business. Banks took deposits, made loans, and people paid them back. Profits were modest but predictable.

And then the industry was deregulated, and all bets were off. No longer did banks make their profits from reasonably priced loans to people who were able to pay. Instead, pre-approved credit card offers flooded the mailbox of every man, woman, and child. Opening a checking account became free, while bounced check fees skyrocketed.

For most banks the real profits now come from late fees, balloon payments, default interest rates, and a host of other tricks and traps. In other words, making a profit has become an exercise in misdirection and misinformation. Sneaky has become the norm. […] The marketplace for financial services hasn’t been free — or fair — for a long time.

There is also some noise that a new protection agency could stifle innovation. But is an over-the-limit fee really an innovation, or just a cheap trick designed to fool customers into believing a product costs one price when the majority of customers actually pay far more?

Tyagi is the daughter of Elizabeth Warren. Together she and her mother have authored two books and several articles, one of which popularized the idea of a Consumer Financial Protection Association. It was included in the Harvard Review’s Breakthrough Ideas for 2009.

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Copyright 2009 The Moderate Voice
  • ProfElwood

    There always has to be a balance between consumer protection and freedom. It’s pretty obvious that, at this time, the banks have a little too much freedom, or maybe the consumers have too little choice. There obviously something wrong when every bank in the nation seems to have $25 or more check bouncing fees when it costs them nowhere near that amount. That sort of uniformity implies collusion, which is best remedied by breaking up the oligopoly that allows for such collusion. Instead, our tax dollars went to helping banks merge into even fewer, bigger corporations.

  • Dr J

    There is also some noise that a new protection agency could stifle innovation. But is an over-the-limit fee really an innovation?

    In other words, Ms. Tyagi doesn’t understand the concern.

    Oligopolies are the problem, and they’re ripe for attack by a new generation of scrappy competitors. I’d like to see regulations tuned to encourage more Paypals and Prospers and other startups re-envisioning financial services.

  • DLS

    “In other words, Ms. Tyagi doesn’t understand the concern.”

    I suspect she had first arrived at the conclusion, independently of any attempt at understanding the problem.

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