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Consumer Protection Issue Brief


In today's world of do-it-yourself retirement, stocks, bonds, mutual funds, and other investment products have become important components of a person's retirement assets. For this reason, the retirement security of Americans may be one of the greatest casualties of the financial crisis. The financial meltdown that this country experienced wiped out an estimated $2 trillion in retirement savings in just 15 months' time. The dwindling of retirement assets, which amounted to about a 20-percent overall decline, has come at a time when many people, including older voters, are grappling with more credit-card debt, declining home values, and reduced access to loans.

In addition, an estimated 5 million older Americans become victims of financial fraud and abuse each year. In part, this reflects the fact that nearly one-third of all U.S. investors is between 50 and 64 years of age. Moreover, the transition from work to retirement is a particularly vulnerable time, as individuals must switch from a strategy based on accumulating assets for future retirement to one of investing for income during retirement. When thieves and con artists defraud or take advantage of these older investors, the results are particularly devastating. Such victims are generally beyond or near the end of their earning years. Thus, older people have little or no ability to rebuild their retirement funds.

At the same time, although older households long have been considered among the most frugal and resistant to consumer debt, changing economic conditions—particularly declining pension and investment income and rising costs for basic expenses, such as prescription drugs, health care, and utilities—have forced many older consumers to rely on credit and financing to make ends meet. Research further suggests that older adults consistently borrow at higher rates and pay more fees for financial products, including home-equity loans, auto loans, credit cards, and mortgages. Increasingly, too, such abusive practices as payday loans and overdraft fees harm the financial health of older consumers.

It is painfully clear that the existing regulatory system has failed to rein in abusive types of consumer loans. Federal regulators often had clear authority to act and either chose not to do so or acted too late to stem serious problems in the credit markets. We can no longer tolerate such inaction.

In addition while not central to the current financial crisis, long-neglected inadequacies in investor safeguards were exposed by the meltdown. Federal regulatory agencies did not make protecting consumers and investors their top priority, and, in some cases, seemed to compete against each other to keep standards low. Regulators ignored festering problems that grew worse over time. In the rare instances when agencies did act to protect consumers and investors, the process was cumbersome and time-consuming. Finally, too many regulators have not acted truly independently of the influence of the financial institutions they regulated.

Legislative and Regulatory Action

AARP supported H.R. 4173, the Wall Street Reform and Consumer Protection Act, which passed the House of Representatives on Dec. 11, 2009 by a vote of 223-202. AARP also has supported a similar draft measure, the "Restoring American Financial Stability Act," released in Nov. 2009 by the Senate Banking Committee Chairman Chris Dodd. Both pieces of legislation take steps toward restoring accountability and responsibility in the financial markets, steps that would help rebuild confidence in financial markets and their regulators. The measures uphold the important role that consumer and investor protection play in ensuring the fairness and stability of the financial markets. Finally, the bills would create a new Consumer Financial Protection Agency and give the Securities and Exchange Commission important new authorities, funding, and direction to protect investors.

AARP strongly supports the creation of the Consumer Financial Protection Agency, which would have as its sole mission the development and effective implementation of standards that ensure that all credit products offered to borrowers are safe. Under the legislation passed in the House and pending in the Senate, the consumer protection regulation and enforcement functions that currently are spread over 17 statutes and seven different agencies will be consolidated in one agency, the CFPA. This new agency will reduce, streamline, and simplify existing regulatory sprawl and ensure that the same rules are consistently applied to and enforced against all entities providing financial products to consumers.

Specifically, AARP supports a CFPA that is an independent agency; covers all financial products; has rulemaking, examination, and enforcement authority; serves as a floor of protection, not a ceiling; and safeguards older citizens, who have unique vulnerability to financial fraud.

Both the House-passed H.R. 4173 and the draft bill in the Senate include similar, though not identical, significant and long-overdue reforms to investor protections. These measures would help to restore investors' shattered confidence, which is critical to the recovery and stability of the financial markets. Such measures include greater resources and authority for the Securities and Exchange Commission, timely and well tested disclosures, more effective oversight of financial intermediaries, and improved remedies to redress wrongdoing.