Posted by: adoseofliberty | October 23, 2009

Protecting Consumers From Themselves

“We now have a standalone consumer protection agency that has very significant powers.”

Thus spoke Barney Frank (D., Mass.), chairman of the Financial Services Committee, who has been a House Representative for nearly 30 years. He was the Congressman that famously stated in 2003 that “these two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis.”

On Thursday, the House Financial Services Committee voted 39 to 29 to create the Consumer Financial Protection Agency, a new federal agency designed to police consumer financial products and practices. Mortgages, credit cards, and overdraft fees offered by any company “ranging from one-room payday loan stores to huge banks like Bank of America Corp” would be regulated. The CFPA would have the ability to fine and penalize any company or investigate any consumer complaint against any bank.

Not surprisingly, lobbyists made their token appearance. The panel voted “overwhelmingly to exempt automobile dealerships from any scrutiny by the new agency, a major win for dealerships that rake in high fees from auto financing.” If only all industries could reap as much political favor as the auto industry.

“It would be more powerful than any other government agency,” said Wayne Abernathy, executive vice president at the American Bankers Association. “It can control every aspect of a financial institution’s relationship with its customers.”

The bill would strip power from the Federal Reserve and other banking regulators and centralize new power within the new agency.

Behold the power of regulation. The Federal Register is the official journal for U.S. federal agencies.  It contains new and existing rules and regulations, and already has over 80,000 pages as of 2009.  In 2003 alone, regulatory agencies issued an additional 4,148 final rules.  Federal regulatory costs were equivalent to almost 8 percent of U.S gross domestic product (which was $10 trillion in 2003). That’s $800 billion.  The regulatory costs were more than twice the $375 billion budget deficit and exceeded all corporate pretax profits, which totaled $665 billion in 2002.  Combined with $2.2 trillion in federal outlays, it brought the federal government’s share of the economy to roughly 27 percent in 2003.

It’s no wonder that banking and business groups warn that the new agency could drive up the cost of credit. The Republicans, all but one of whom voted against the bill, made this point clear: this new federal bureaucracy takes away the consumers’ ability to make their own financial decisions. More importantly, it continues to dissolve the once-held belief of personal responsibility.


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