Millions of consumers got burned in the meltdown of the mortgage market. Yet the financial services industry remains adamantly opposed to President Obama's proposed Consumer Financial Protection Agency, intended to streamline and strengthen safeguards for the little guy.
The proposed watchdog would oversee mortgages and other consumer loans and would ensure that financial institutions comply with all relevant laws -- some parental supervision that most if not all people would agree is long overdue.
Yet the U.S. Chamber of Commerce launched a lobbying and ad campaign to derail creation of the new-and-improved regulatory agency.
"This new agency would have sweeping powers to regulate over 45 industries and add yet another layer of government bureaucracy to an already disjointed and dysfunctional system," declared David Hirschmann, head of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness.
That's a pretty remarkable thing to say as we mark the first anniversary of the fall of Lehman Bros. and the near-collapse of the U.S. financial system.
If anyone's in a position to know why more regulation is needed, it's former New York Gov. Eliot Spitzer, who, as state attorney general, almost single-handedly held Wall Street accountable for all manner of shenanigans.
"The very fact that the chamber is opposed to this new agency shows that it's necessary," he told me. "How many years have we heard them say that industry can regulate itself?"
I know: It's hard not to snicker when Spitzer criticizes others. He stepped down as governor in March 2008 after his fondness for high-priced hookers came to light.
But zipper issues notwithstanding, he's still the man when it comes to highlighting federal regulatory shortcomings and the self-serving actions of the financial services industry.
It was Spitzer's office that exposed dubious practices in the mutual fund industry in 2003, resulting in more than $4 billion in restitution to consumers. He also engineered a $1.4-billion settlement with leading investment banks and brokerages over inflated stock prices.
Spitzer believes a Consumer Financial Protection Agency would serve a crucial purpose in ensuring a level playing field as the economy claws its way back to stability.
"I have absolutely no confidence that the agencies now overseeing banks can come back to life," he said. "It's time to start fresh."
Most consumers seem to agree. A poll released last week by the Consumer Federation of America found that 57% of respondents support creation of a new financial watchdog agency that would assume functions currently spread among multiple agencies.
The poll also found overwhelming support for such common-sense measures as requiring banks to clearly disclose mortgage fees upfront and to alert customers if they're about to overdraw an account at the ATM.
It's pretty simple: Trust is something you earn. Banks have shown repeatedly that customers' interests place a distant second to the banks' interests, especially when it comes to finding new ways to raise revenue through fees and penalties.
"Americans are fed up with the tricks and traps they confront daily as they purchase and use financial products and services," said Travis Plunkett, legislative director for the Consumer Federation of America.
"Americans want a cop on the beat to rein in these abuses, which helped trigger the current economic crisis and have worsened the plight of those hardest hit by the recession."
The analogy is a good one. If banks play fair and keep their noses clean, they'll have nothing to fear. So why are they so fiercely opposed to having a new cop patrolling the neighborhood?
"We're all for consumer protection," replied Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, an industry group. "But we think the more effective way to do this is to strengthen the tools at existing regulators."
He argued that you shouldn't have one agency regulating the various products and services offered by banks, and other agencies overseeing the institutions at a corporate level.
To which I say: Why not? Our current regulatory regime has proved itself incapable of adequately looking after the interests of consumers. Why not carve out a separate watchdog whose sole job is to make sure that banks aren't cheating their customers?
Obama made the same point on Monday when he traveled to Wall Street to renew his call for regulatory reform. He challenged those who think our current system is good enough.
"Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them," he said. "They do so not just at their own peril, but at our nation's."
Spitzer was more succinct. "They just don't get it," he said of banks' adherence to the status quo.
If for no other reason, that's why change is needed.
David Lazarus' column runs Wednesdays and Sundays.
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