The first sign that maybe this much-touted financial overhaul might not be all it was cracked up to be was the reaction from Wall Street. It was just before sunrise on Friday morning that negotiators for the House and Senate gave birth to a new reform package they dubbed the Dodd-Frank bill. Investors greeted the news by driving up the stocks of the biggest brand-name banks.
But consumers should still celebrate the bill, even though banks aren't too shaken by it. At the risk of sounding like Sen. Chris Dodd's (D-CT) press secretary, I'd say this final bill is a pretty remarkable piece of legislation. And I'm hardly the only one. Talk to the consumer lobbyists and other caped-crusader types who for years have been pushing for greater financial protections for consumers. They'll tell you that this reform package nearly 12 months in the making is pretty much exactly what they have been asking Congress to do for more than a decade.
The New Consumer Financial Protection Bureau
Any analysis of the Dodd-Frank bill has to begin with the newly hatched Consumer Financial Protection Bureau. Think of this new watchdog that will live inside the Federal Reserve as a kind of Environmental Protection Agency for mortgages and other consumer loan products.
Until now, responsibility for protecting consumers from deceptive and harmful home loans has been scattered across more than a half dozen federal agencies -- yet not one of them makes the consumer its main focus. If this bill passes, at least one agency inside the federal bureaucracy will be required to put the protection of the vulnerable and financially unsophisticated ahead of the safety and soundness of the banks.
"The bank regulators did little or nothing to protect consumers from these toxic financial products which inflicted such grievous economic harm," said Bill Brennan, a Legal Aid lawyer who has been running the Home Defense Project in Atlanta since the late 1980s. "We've desperately needed an agency like this for 20 years."
The bill is not perfect. Auto dealers, for instance, were granted an exemption from this new agency. (For a sense of why this was a disappointment to consumer advocates, read this piece I wrote for The New York Times or this one that journalist Mike Hudson wrote for The Center for Public Integrity.) But pretty much every other business the consumer advocates wanted in there falls under its purview. That includes payday lenders, check cashers, credit card companies, and even fringe businesses like the tax mills offering instant tax refunds to those so hard up for cash they can't wait on the IRS. The reform crowd pretty much got their way on everything else as well, from an independent source of funding for this agency to an independent director appointed by the President.
"This bill doesn't implement all of the reforms we've been seeking but this new agency pulls together the enforcement of the federal credit laws in one place," said Jean Ann Fox of the Consumer Federation of America. "One of the things we expect to see finally is uniform application of federal laws to all products to all types of providers," from banks to pawnbrokers and every shape and size of storefront lender in between.
Future Subprime Crises Prevented
I've spent much of the past two years reporting on the economic fringes. I've hung out with the characters who invented the payday loan industry. I spent time with people whose lives were gobbled up by a predatory subprime mortgage.
The deeper my reporting took me, the more I became convinced that it's consumer protections, not rules aimed at reigning in Wall Street, that could have been the silver bullet that prevented the worst of the subprime fiasco. And it's on that front where the Dodd-Frank bill is the strongest.