Merkley: Financial Regulation Overhaul Must Include Protections for Consumers

Monday, June 15, 2009

Washington, DC – This week, President Barack Obama will lay out principles for the upcoming debate over modernizing regulations of the financial market.  Oregon’s Senator Jeff Merkley is urging the White House to include strong protections for consumers in that effort. 

The lack of clear regulations and strong protections for consumers directly resulted in today’s economic meltdown which has cost our nation hundreds of thousands of jobs and forced tens of thousands out of their homes.  Empowering working Americans and providing clear rules of the road for financial transactions will help ensure we don’t face similar crises in the future.

“Our financial system has gone totally off-track.  Banks and other financial institutions peddled dangerous and tricky loans to consumers.  They then bundled these dangerous loans into ever more intricate and incomprehensible financial products – products that no one could properly value, then or now,” said Merkley.  “When the housing bubble collapsed, financial institutions did not have the assets to back up the risks they had taken.  Taxpayers were asked to commit billions to rescuing these institutions, even as lending dried up, families were thrown out of their homes, and the economy slowed to a halt.  The collapse of this system makes it crystal clear that we cannot continue down this path again – we need strong rules that both financial institutions and working Americans can understand.”

In a letter to the White House, Merkley urged the President to support three components of financial regulation that would help protect consumers:

• The creation of an independent financial products safety commission that would guarantee financial products receive the same scrutiny as other products.  While we currently have a Consumer Products Safety Commission which protects consumers from dangerous appliances and clothing, we have no similar commission to protect financial consumers from dangerous mortgages, credit cards and other financial products.  Moreover, creating an independent agency focused on financial consumer protection is the most important thing we can do to ensure the long-term safety and soundness of our financial system because, as this crisis has taught us, the best systemic risk regulation is good consumer protection.
• Including a housing expert in any body created to evaluate the systemic risk of the financial system.  The two largest financial crisis of the last thirty years – the savings & loan crisis of the 1980s and the present subprime crisis – originated in failures in housing finance. Today’s crisis, in particularly, was caused in part because regulatory bodies were not looking at whether it was likely that housing prices would forever increase.  When they started to decrease, financial institutions did not have sufficient capital reserves to cover their losses.  A housing expert would help ensure that financial institutions and regulatory bodies have a clear understanding of that market.
• Implementing laws that would ban the most egregious lending practices, such as prepayment and steering penalties.  These practices trapped families in loans they could not afford but could not refinance.  Senator Merkley has introduced two bills to end these types of penalties. 

“Restoring the rules of the road for our financial regulatory system is critical to protecting the American economy and ensuring its stable growth over the long term,” said Merkley.  “Over the last several years, the financial markets became casinos where the banks made bets and the taxpayers paid the bills.  Americans deserve better than to have their jobs, homes, and savings subject to the whims of such a market.  I look forward to working with the Administration to restore fairness and protect consumers.”

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