New Federal Financial Regulatory Agency Will Protect Consumer’s Rights

LCCR and other civil rights organizations have long argued that the modern system of mortgage lending is profoundly flawed, and keeps many people from sustainable homeownership.

Despite the gains made in civil rights and fair housing during the last several decades, many members of racial and ethnic minority communities still struggle to obtain fair and sustainable mortgages, with federal regulators doing little to prevent the predatory lending practices that heavily contributed to the nation’s economic downturn.

Recently, LCCR’s Nancy Zirkin testified before the House Financial Services Committee in support of legislation that will create a new agency responsible for the enforcement of most financial consumer protection laws.

Inadequate federal oversight of the banking industry made it easy for irresponsible lenders to make abusive loans – not only in minority communities but throughout the nation – with loan terms that were virtually guaranteed to plunge borrowers deeper into debt.

There was also little oversight as discriminatory lenders steered racial and ethnic minority borrowers into higher-cost subprime loans. This systemic discrimination is a significant underlying cause of our nation’s current financial crisis.

Although several federal regulatory agencies, such as the Federal Reserve Board, have the legal authority to stop predatory and discriminatory lending practices, the agencies’ primary focus has always been on maintaining the stability of the nation’s banking and financial system, with little or no resources devoted to protecting the rights of consumers. In addition, the agencies rely on their member banks for funding, creating conflicts of interest that preserve the status quo.

“Given the obvious inability of the existing financial regulatory system to adequately look out for the interests of our communities, LCCR strongly believes that the only option is to create a new regulator that will,” Zirkin said in her testimony.

The Consumer Financial Protection Agency Act of 2009 will move the responsibility for enforcing most financial consumer protection laws to a new agency whose sole mission will be the protection of consumers. In addition to mortgages, the agency will have oversight over many other consumer financial services and products, such as credit cards, checking and savings accounts, credit reports/scores, payday loans, residential leases, and wire transfers.

The Consumer Financial Protection Agency (CFPA) will be tasked with protecting consumers from abuse, deception, and discrimination, as well as with ensuring that the consumer financial services market operates fairly and that traditionally underserved communities have access to mainstream financial services.

The new agency will be an important step forward in protecting the civil rights of consumers. However, to be effective, the agency must be given the necessary resources to vigorously enforce fair lending laws as well as the authority to force institutions to comply with the laws.