Can Consumer Finance Regulation Imitate the Success of Airline Regulation?
Just one year after the U.S. Department of Transportation issued its rules on tarmac delays, only 20 delays of three hours or more were reported. That compares with 693 delays in the prior year, before the rules were implemented — a whopping 97 percent decline.
Critics had predicted that the rules, which slap the airlines with hefty fines if they leave passengers sitting on the tarmac for more than three hours, would result in an epidemic of airline cancellations, as carriers terminated flights to avoid the rule.
That didn’t happen: The number of canceled flights with tarmac delays of more than two hours – those most likely to be canceled to avoid violating the rule – increased only slightly, from 336 between May 2009 and April 2010 to 387 between May 2010 and April 2011, the DOT reported.
These additional 51 cancellations compare to more than six million flights operated by the reporting carriers in a given year, the DOT reports.
Could rules governing the worst financial products (pay day loans, toxic mortgages) produce similar wins for consumers? As I noted in today’s Yahoo!Finance column, the Consumer Financial Protection Bureau, a new agency created by the Dodd-Frank financial regulation bill, is set to open July 21. The CFPB’s goal is to provide more transparency to consumers so they can compare financial products in an apples-to-apples way, and will be the first government agency focused solely on the welfare of consumers in financial transactions. (The mission of existing agencies is focused on the soundness of banks. What exactly did The Fed do amid warnings that out-of-control lending would lead to a real estate collapse? It kept interest rates really really low.)
But the CFPB must have a director in place by July 21 to receive its regulatory authority. That should rightly be Elizabeth Warren, the Harvard law professor who set up the agency as a special advisor to the president. But Senate Republicans have vowed to block the nomination of any director unless major changes are made to the agency. Consumer advocates charge that the GOP is trying to weaken the agency’s powers at the behest of Wall Street and the financial services lobby, while the senators say the agency will stifle financial innovation.
We don’t have to look to other industries for examples of regulatory success. See this 2009 post about Vermont, which had the lowest foreclosure rate in the country. Vermont also has some of the most rigorous mortgage lending laws, requiring mortgage brokers, for example, to have a fiduciary duty toward borrowers, that puts them partly on the hook if a client defaults.
We have a Consumer Product Safety Commission to make sure dangerous products don’t kill or maim. We have an Environmental Protection Agency to insure polluters don’t do the same. We have a Department of Transportation to keep consumers safe and help make travel a minimally decent affair. Why not an agency that helps ensure people don’t wreck their financial lives?
Click here to sign a petition calling on Republicans to stop blocking Warren’s nomination.
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June 10th, 2011 at 3:25 pm
Hmmmm — the CPSC, EPA, department of public safety (the DOT builds and maintains roads, not regulates driving behavior) all exist primarily to protect the public from the acts of others. Only the CFPB would exist to protect consumers from their own poor decisions.
I’m all for promoting financial literacy and creating informed consumers, but where does protecting me from myself end? How long before our legislators decide that I’m not capable of deciding how many hours a day I will sleep, what foods I will eat and how much of those foods I will consume, whether I might choose to go sky diving or scuba diving, or really live damgerously and walk through a bad part of town at night?
Let’s not shift all of the accountability for making the decisions in our life to the government. I, for one, would like to retain the opportunity to decide when to change my socks.
How about some financial literacy education, then a bit of personal accountability for a change?