Protecting consumers: Wall Street reform one year later

The CFPB will be a strong, independent agency organized to protect financial consumers who are tired of being tricked with 30 pages of fine print that nobody except lawyers understands. Before the crisis, under eight years of policies that favored Wall Street over Main Street, bank regulators looked out for banks, not for consumers. Now, the CFPB will put an end to deceptive and predatory schemes and stand on the side of consumers who need someone protecting their interests.

Despite the claims from Wall Street, the CFPB actually won widespread praise from both consumers and the industry for its first major initiative when it created a new and greatly simplified “Know Before You Owe” mortgage loan disclosure form. The bill also included important investor protections like the “honest broker” amendment that I advocated, which gives the SEC the power to require financial professionals to manage consumers’ money with the best interests of the consumer in mind.

{mosads}Under the new rules, financial institutions will be forced to take seriously their traditional role of safeguarding customer deposits and making good loans rather than taking wild gambles with the money of unsuspecting middle class families. The law also implements commonsense rules on risky trading and ensures that they do not engage in hedge fund or private equity fund activities. It also shines a light on derivatives, or “financial weapons of mass destruction” as Warren Buffet called them, by putting them on open exchanges. And it requires higher levels of capital at banks to serve as a buffer against another downturn.

Wall Street reform helps put an end to taxpayer bailouts. We simply cannot have a system in which big Wall Street financial institutions risk the savings of millions of Americans knowing that they can keep the gains if they win, but middle class families will pay the costs if they lose. The bill created a way to wind down big non-bank companies like AIG so that the failure is less likely to spread contagion to the rest of the financial system. It created a more vigilant “early warning system” to crack down on problems in our financial markets before they get worse. All of these steps together reduce the risk that taxpayers will have to bail out big companies again.

Fixing our broken system was not easy, and it is still not over. The big financial institutions on Wall Street, mortgage lenders, and credit card companies have profited immensely under the old rules. They have flooded Washington with lobbyists who are working day and night to try to water-down the reforms and keep the status quo that got us into this mess in the first place.

We should continue to stand up for a banking system that is fair, transparent and honest, one that can earn profits, but also protects the interests of middle class families who deserve to know their money is safe.