Thursday, March 11, 2010

Financial Consumer Protection — Washington Is Not Ready

The focus of the recent discussion on a financial consumer protection agency suggests that the idea of financial consumer protection may still be too radical for Washington.

Placing this agency in the Treasury Department would create an obvious conflict of interest. The focus of the Treasury Department is obvious enough from its name. Its interest in the people’s money mainly has to do with finding ways to get the people’s money into the national treasury. That’s the way you’d want a treasury to work, but it’s not exactly consistent with the goal of protecting consumers.

Equally obvious conflicts can be found in alternative suggestions for placing the agency in the Fed or the FDIC. Worse, the task of consumer protection would weaken the focus of these agencies on their very important primary missions.

The reason politicians want to gut the proposed financial consumer protection agency by placing it in a position of inherent conflict is that they are afraid of what an independent agency charged with financial consumer protection might do. It could be the end of “gotcha” banking, the current scheme in which the biggest share of bank revenue comes from fees that the customers don’t expect. And if that could change, what else could change?