We need the Consumer Financial Protection Agency

The Federal Reserve Board and other bank regulators have known for years about an array of predatory financial practices-from overdrafts to hidden fees on credit cards to adjustable-rate subprime mortgages-but allowed them to become pervasive, stripping hundreds of billions of dollars from American families. Abusive lending practices that threaten the financial well-being of individuals eventually undermine the entire economy, as the mortgage meltdown has painfully shown us.

Take the typical bank overdraft program. For a $34 fee, banks let consumers use a debit card to overdraw their account at the checkout counter or ATM. Consumers who assumed using a debit card would prevent them from spending more than they have can suddenly find themselves saddled with hundreds of dollars in fees for a few small purchases. These small-loan programs are a cash cow for banks, yielding more than $20 billion in fees from customers each year.

Wouldn’t that money be better spent on savings or on productive goods and services that could help revive the economy?

Even with the changes that some banks announced last week, they can continue to engage in unfair overdraft practices, including charging an excessive number of overdraft fees daily. And most of these banks will still charge overdraft fees without first obtaining a customer’s explicit consent to do so, a practice that thousands of Americans sent the Federal Reserve Board written complaints about last spring.  The bottom line: Even with overdraft “improvements,” an $11 purchase at the
corner drug store can still easily end up costing $45. We need an efficient cop who can make sure banks abide by common-sense lending rules, and the sooner the better.