Consumer Protection Issue Brief

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.