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DODD ON THE NEED FOR FINANCIAL PROTECTIONS

“The classical model has fallen apart, and the people who paid the price for it are consumers.” “We need to get this right.”

July 14, 2009

WASHINGTON – Today, Senate Banking Committee Chairman Chris Dodd (D-CT) responded to critics of the proposal to create an independent Consumer Financial Protection Agency that will have the sole job of looking out for the financial interests of ordinary Americans by banning unfair practices and enforcing the rules.
 
“We have been faced with a radical situation in our country,” said Dodd.  “This is unprecedented.  And in a lot of respects the classical model has fallen apart, and the people who paid the price for it are consumers; that home owner or that potential home owner, that person out there today who’s losing their home, they’re losing their jobs, they’re losing their retirement, they’re losing their healthcare, and to them this is pretty radical.”
 
“This is not an abstract problem to them. It is a real one.  And when you get ten thousand people a day losing their homes and twenty thousand people a day losing their jobs that’s radical, believe me.”
 
“I’m not looking for radical solutions here that don’t meet the problem.  But if we don’t understand the depth of this problem, and the anger of the people of this country of what they’re going through, and the demand that we start paying attention to what happens to them every single day as they walk into an institution to borrow money, to buy a policy, to invest in a corporation because they want to increase their stability, then we’re losing something here.”
 
“We need to get this right.” 
 
Dodd made the remarks at full committee hearing on the proposal for a Consumer Financial Protection Agency.  Below is his opening statement.
             
Remarks of Chairman Christopher J. Dodd
U.S. Senate Committee on Banking, Housing, and Urban Affairs
CREATING A CONSUMER FINANCIAL PROTECTION AGENCY: A CORNERSTONE OF AMERICA’S NEW ECONOMIC FOUNDATION
 
This morning, we are taking an important step in our efforts to modernize our financial regulatory system.  The failure of that system in recent years has left our economy in peril as we all know and caused real pain for many hard-working Americans who did nothing wrong themselves.
 
And so, I’d like to start by reminding everyone that the work we do here, the details, matter to real people, the men and women in my home state of Connecticut and across our nation who work hard everyday, play by the rules, and want nothing more than to make a better life for themselves and their families. 
 
These families are the foundation, all of us know, of our economy and the reason we’re here in Washington working on this historic and critically important legislation.
 
That’s why the first piece of the Administration’s comprehensive plan to rebuild our regulatory regime and our economy is something that I have championed as well: an independent agency whose job it will be to ensure that American consumers are treated fairly and honestly.
 
Think about the moments when Americans engage with financial service providers.  I’m not talking about big-time investors or financial experts, just ordinary citizens, working people trying to secure a stable future for themselves and their families.   They’re opening checking accounts, they’re taking out loans, they’re building their credit, trying to build a foundation upon which their family’s economic security can rest for years to come.
 
These can be among the most important and stressful moments a family can face.
 
Think of young people.  They’ve carefully saved up for a down payment.  It might be a modest house – but it’ll be their first home, a starter home.  Before they can move into their new home, however, they must sign on the dotted line for that first mortgage with its pages and pages of complex and confusing disclosures.
 
Who’s looking out for them in that process?
 
Think of a factory worker who drives thirty miles to and from work every day in an old car that’s about to give out.  He needs another one to make it through the winter, wages are stagnant and the family budget is stretched to the max.  He’s got no choice but to navigate the complicated world of auto loans.
 
Who’s looking out for that person?
 
Think of a single mother, and there are many of them in his country, whose 17-year-old son or daughter just got into his or her first choice for college.  She’s overjoyed for him, but worried about how she’ll pay the tuition which grows every year.  Financial aid might not be enough, and she knows that even as her son or daughter begins the next chapter in a life filled with promise, they might be saddled with overwhelming debt.
 
Who’s looking out for that family?
 
These moments are the reason we have invested so much time and money to rebuild our financial sector even though some of the very institutions that the taxpayers have propped up are responsible for their own predicaments.  These moments are the reason why we serve on this Committee and why we’ve all come to this city to try and make a difference in the lives of the people we represent.
 
 And these moments are the reason I and many of my colleagues were enraged at the spectacular failure of consumer protection that destroyed the economic security of so many American families.
 
In my home state of Connecticut and around the country, working men and women who did nothing wrong have watched this economy fall through the floor – taking with it jobs, homes, life savings, and the cherished promise of the American middle class. 
 
These people are hurting, they are angry, they are worried.  And they are wondering whether anyone looking out for them.
 
Since the very first hearing before this Committee on modernizing our financial regulatory structure, I have said that consumer protection should be our top priority in our deliberations.
 
Stronger consumer protection could have stopped this crisis before it started mind you. 
 
And where were the regulators in all of this?   For fourteen years, despite a clear directive from Congress, the Federal Reserve Board took no action to ban abusive home mortgages.  Gaping holes in the regulatory fabric allowed mortgage brokers and bankers to make and sell predatory loans to Wall Street that turned into toxic securities and brought our economy to its knees.
 
That is why many of us called for the creation of an independent consumer protection agency whose sole focus is the financial well-being of consumers; an agency whose goal is to put an end to lending practices that have ripped off far too many American families.   And the Administration has sent us a bold and, I believe, thoughtful plan for that agency.
 
You would think financial services companies would support protections that ensure the financial well-being of their customers.  
 
An independent consumer protection agency can, and should, be good for business. 
 
It can, and should, protect the financial well-being of American consumers so that businesses can rely on a healthy customer base as they seek to build long-term profitability.
 
It can, and should, eliminate the regulatory overlap and bureaucracy that comes from the current balkanized system of consumer protection regulation. 
 
 It can, and should, level the playing field by applying a meaningful set of standards, not to the highly regulated banks, but also to their nonbank competitors that have slipped under the regulatory radar screen.
 
Financial services companies that want to make an honest living should welcome this effort to create a level playing field. 
 
Indeed, the good lenders, and there are many, are the most disadvantaged when fly-by-night brokers and fly-by-night finance companies set up shop down the street.  Then we see bad lending pushing out the good.
 
No Senator on this Committee, Democrat or Republican, wants to stifle product innovation, limit consumer choice, or create regulation that is unnecessary or unduly burdensome. 
 
And I welcome constructive input from those in the financial services sector who share our commitment, by the way, to making sure that American families get a fair shake.
 
We all want financial services companies to thrive and succeed, but they will have to make their money, in my view, the old fashioned way -- by developing innovative products, pricing competitively, providing excellent customer service, and engaging in fair competition on the open market. 
 
The days of profiting from misleading or predatory practices need to be over.  The path to recovery of our financial services companies and our economy is based on the financial health of American consumers.  I believe that very deeply.
 
We need a system that rewards products and firms that create wealth for American families, not one that rewards financial engineering that generates profits for financial firms by passing on hidden risks to investors and borrowers.
 
The fact that the consumer protection agency is the first legislative item the Administration has sent to Congress since it released its white paper on regulatory reform last month tells me that our President’s priorities are in the right place.  
 
Nevertheless, with the backing of the Administration, with the support of many in the financial community who understand the importance of this reform, and, most of all, with a mandate from the American families I’ve discussed who count on a fair and secure financial system, I believe that we will move forward and we will succeed.
 
 
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