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Consumer protection made big gains in 2011

The opening of a federal financial watchdog agency and the blocking of the proposed merger of AT&T and T-Mobile were some of the victories. But more challenges loom.

January 01, 2012|David Lazarus
  • Senate Republicans have blocked President Barack Obama's nomination of Richard Cordray, right, to be director of the Consumer Financial Protection Bureau.
Senate Republicans have blocked President Barack Obama's nomination… (Manuel Balce Ceneta, Associated…)

The last year was a remarkable one for consumer protection.

Among the wins: A new watchdog agency opened for business, regulators cracked down on a controversial merger and a major bank retreated from a dubious fee.

But there's still plenty of heavy lifting to be done as the economy trudges back to higher ground. Consumers and corporations will continue to tussle for the upper hand amid a shifting regulatory and political landscape.

"There are definitely a number of hurdles for us to get over," said Sally Greenberg, executive director of the National Consumers League in Washington. "We have a tough year ahead."

New sheriff in town

The biggest consumer news of 2011 was the July arrival of the Consumer Financial Protection Bureau. That's the agency President Obama created to keep a closer watch on credit card issuers, mortgage lenders, payday loan companies and other businesses with a direct effect on people's financial lives.

Because banks and other firms fought against the agency every step of the way, the mere fact that it's up and running is a major accomplishment. But Republican lawmakers are blocking appointment of a director until they can water down the agency's leadership structure and have more say over its finances.

The first few months of the Consumer Financial Protection Bureau's existence were focused on getting the word out about its operations and encouraging consumers to report problems. As of Oct. 21, the agency said, it had received more than 5,000 complaints about credit cards.

Although the bureau has yet to issue an enforcement action or regulatory mandate, officials say they're off to a good start.

"We've already launched efforts to bring greater transparency to the mortgage and student loan markets," said Raj Date, special advisor to the Treasury secretary for the agency.

"Going forward, we'll continue to hold ourselves to a high bar," Date said. "We'll be tough but fair. We'll help fix the broken markets that exist today. And we'll help make sure that past mistakes are not repeated."

Coming months will see the bureau focusing on enforcement of financial reform legislation requiring lenders to assess upfront whether a potential borrower has the ability to repay a loan, and on making sure mortgage bills are easier to understand.

Debit card debacle

And speaking of banks, consumers notched a rare win when Bank of America dropped plans for a $5 monthly debit card fee.

BofA threw in the towel after consumers and lawmakers said it was unreasonable to hit people with a charge just to access their money, and after other banks withdrew their own plans for similar fees.

If nothing else, BofA's retreat shows that the relationship between banks and their customers isn't a one-way street, and that financial institutions are capable of recognizing when they've pushed their luck.

Until the next fee comes along, that is.

Meanwhile, I'll claim credit for a modest victory after getting health insurer Anthem Blue Cross to drop its plan to charge a $15 "convenience fee" for credit card payments. After I discovered that such a fee could violate state law, Anthem said it would waive the charge for the foreseeable future.

So what can we anticipate for 2012? Clearly financial institutions should expect greater scrutiny of their business practices by consumers, lawmakers and regulators.

No one begrudges banks a fair profit for their services. But there will be greater pressure for them to justify levies that appear to serve no purpose but to bolster shareholder returns.

It's also likely that regulators will apply the brakes to megabillion-dollar mergers that make the big a whole lot bigger but place consumers at a distinct disadvantage.

Push-back over merger

That became clear when the Justice Department filed a lawsuit to stop AT&T's $39-billion merger with rival T-Mobile on antitrust grounds, followed by the Federal Communications Commission challenging AT&T's assertions that the deal would result in lower prices, better service and jobs aplenty.

In a move that would have been unthinkable under the merger-friendly Bush administration, the FCC not only questioned the legitimacy of AT&T's claims but released a staff report all but calling AT&T's pie-in-the-sky assertions outright lies.

AT&T responded with a statement saying the report was "so obviously one-sided that any fair-minded person reading it is left with the clear impression that it is an advocacy piece, and not a considered analysis."

Just the opposite is true. This was an example of regulators doing the job they were appointed to do: Safeguarding the public from self-interested businesses that place market control ahead of providing customers with the best possible product at the best possible price.

There's nothing inherently wrong with mergers. But companies shouldn't stretch the truth in justifying such moves. AT&T erred in selling its marriage to T-Mobile as a boon to consumers and the country. It wasn't.

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