Consumer Protections Hung Up in Senate

By Rachel Ward

Rochester, NY – When you ask Democratic Congressman Dan Maffei what's going on in the Senate, he takes a deep breath, and then speaks very carefully.

"If you saw the state of the union address, you could have spliced together all the times that the president said 'well, the House has passed something, we need the Senate to take action on it, the House has done this, we need the Senate to take action on it."

Maffei was in Rochester earlier this week, to promote new rules for credit card companies, which go into effect on February 22. But to really protect consumers, Maffei says there needs to be something akin to a Food and Drug Administration, but for debit cards and mortgages and other financial products.

The House has already passed a bill to create a "consumer financial protection agency." But when the Senate's reforms will even make it out of committee, is anyone's guess, Maffei says jokingly.

"Until the Senate can work out its issues, you know, it's hard to say. I'm still hopeful that sometime this spring they'll pass it. Maybe I should have just said that."

Maffei's reluctant to criticize the Senate because they're working on what he and a lot of other politicians - and a lot of consumer advocates - really, really want: new safeguards to prevent financial institutions from taking advantage of consumers, to prevent what happened last year from happening again.

Ruhi Maker is a lawyer with the Empire Justice Center, in Rochester. She says an agency dedicated to protecting consumers' bank accounts could have helped prevent the sub-prime lending crisis, and subsequent bank failures.

"The economy is nimble, and it should be nimble. That is the good piece of a capitalist economy that new products come up all the time, but some of those new products can be hurtful. And as we all know, legislation takes a very long time, and we know once you have a piece of legislation you're not going to go back next year and say 'hey they're doing this, let's change it'. Because that's not gonna happen. That's why you need a consumer protection agency that's there, that's in touch with the consumers."

The banking industry isn't unregulated, but it is regulated in a way that ensures that banks make a profit. That's according to Bob Manning, a consumer debt expert. He says there are plenty of agencies in Washington with career bureaucrats assigned to look out for banks - but there isn't one looking out for consumers.

"It's the tricks and the booby traps and the just general lack of information that the industry offers consumers to get them in debt, that this agency will provide a counterbalance, to make sure that standards are met from lenders that make sure that they're not going to continue to abuse and exploit consumers the way they have over the last decade."

Manning says right now, the political system is paralyzed. The Senate is still trying to right itself after the Democrats lost their filibuster-proof majority, and health care reform stalled. And that paralysis has opened the door for a parasite.

Manning says bank lobbyists have descended on the handful of senators who are working on financial reforms. He's worried that if a consumer protection agency gets created, it'll mean some other necessary financial reform is watered down, tit for tat.

"It's a bargaining chip that could easily get sacrificed in the final bill when it comes out of the senate banking committee and becomes voted on by the full senate."

But according to Ruhi Maker, with the Empire Justice Center, the stakes are too high for the Senate not to act.

"The truth of the matter is, we are a huge multi-trillion dollar economy with these huge multi-trillion dollar entities, but when things start to go south, we don't have a system to stop it from going south. And you had these ad hoc things happening."

Maker says right now consumer financial reform in the senate is "literally consuming her life" and that every day there's a new development that could change the entire course of the legislation.

Currently the Senate is in recess, but she says she's hopeful that the banking committee could have something to show for their negotiations when they return to work on Monday.