Looking for a watchdog with teeth

By Michelle Singletary
Washington Post Staff Writer
Sunday, April 25, 2010

Burglars hate alarm systems, and they hate big barking dogs.

This is what we need in the financial industry: a better alarm system in the form of a big, bad barking dog solely dedicated to protecting consumers.

With health-care reform in place, such as it is, Congress is now fighting over financial regulatory reform. This is a battle consumers need to win.

Part of the reform being pushed by Sen. Christopher J. Dodd (D-Conn.) is the creation of a Bureau of Consumer Financial Protection. This agency would regulate consumer financial products and such services as mortgages, other loans and credit cards. A council would be established to sound the alarm early if companies or products pose a risk to the economy. New rules would better protect and inform investors.

Given what we've seen in recent years, it's time to enact some safeguards to help prevent what led to our current economic crisis.

For too long, the financial industry has been able to prey on consumers in the name of caveat emptor -- "let the buyer beware."

As in the past, the financial industry will holler and pump up the coffers of their lobbyists to try and block reform. It already is trotting out the same old tired and self-serving arguments that the legislation will create a regulatory burden and eventually drive up prices, tighten the availability of credit or prevent the creation of new products.

Oh, cry me a river.

Some regulation is better than none at all. Besides, prices were going up anyway. Some people shouldn't have access to credit because they can't afford it. And financial firms will still have an economic incentive to create new ways to snarl people in debt.

But let's not forget that for decades, Congress has stepped in and successfully passed laws that have helped curb abuses on consumers.

So in pondering the debate over financial reform, ask yourself: Where would we be without the Truth in Lending Act of 1968? This federal law requires clear disclosure of key terms and costs of a lending deal. For the first time, lenders had to really come clean about the true interest rates on loans. That legislation, pushed by Sen. William Proxmire, took years to pass. But it eventually got through because people were tired of lenders who were misleading borrowers about the cost of their credit.

Later, we got the Fair Credit Reporting Act, which gives consumers the right to check their credit reports and regulates how credit bureaus use the information they collect about consumers. This law has paved the way for people to get a free copy of their credit reports. In 1974, the Equal Credit Opportunity Act, prohibiting discriminatory credit screening, was passed. The Fair Credit Billing Act protects consumers from unfair billing practices: It gives them the ability to fight back if incorrectly charged on an "open end" account, such as credit card.

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