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Congressional Record Statement: Wall Street Reform

Thu, July 15, 2010


Mr. President, I strongly support the Dodd-Frank conference report. I commend the Chairman for all of his work to address so many issues vitally important to working families. I thank my friend from Connecticut for working closely with me to ensure that this legislation will educate, protect, and empower consumers and investors.

An Office of Financial Education within the Consumer Financial Protection Bureau is created by the legislation. The Office is tasked with developing and implementing initiatives to educate and empower consumers. A strategy to improve the financial literacy among consumers, that includes measurable goals and benchmarks, must be developed.  The Administrator of the Bureau will serve as Vice-Chairman of the Financial Literacy and Education Commission to ensure meaningful participation in federal efforts intended to help educate, protect, and empower working families.

The conference report also addresses investor literacy.  A financial literacy study must be conducted by the Securities and Exchange Commission (SEC). The SEC will be required to develop an investor financial literacy strategy intended to bring about positive behavioral change among investors.

Essential consumer and investor protections for working families are included in the conference report.  A regulatory structure that will have a greater emphasis on investor and consumer protections is established.  Regulators failed to protect consumers and that contributed significantly to the financial crisis.  Prospective homebuyers were steered into mortgage products that had risks and costs that they could not understand or afford.  The Consumer Financial Protection Bureau will be empowered to restrict predatory financial products and unfair business practices in order to prevent unscrupulous financial services providers from taking advantage of consumers.

Mr. President, I take great pride in my contributions to the investor protection portion of the legislation.  Section 915 will strengthen the ability of the Securities and Exchange Commission to better represent the interests of retail investors by creating an Investor Advocate within the SEC.  The Investor Advocate is tasked with assisting retail investors to resolve significant problems with the SEC or the self-regulatory organizations (SROs). The Investor Advocate's mission includes identifying areas where investors would benefit from changes in Commission or SRO policies and problems that investors have with financial service providers and investment products.  The Investor Advocate will recommend policy changes to the Commission and Congress on behalf of investors.

The Investor Advocate is precisely the kind of external check, with independent reporting lines and independently determined compensation, that cannot be provided within the current structure of the SEC. It is not that the SEC does not advocate on behalf of investors, it is that it does not have a structure by which any meaningful self-evaluation can be conducted.  This would be an entirely new function.  The Investor Advocate would help to ensure that the interests of retail investors are built into rulemaking proposals from the outset and that agency priorities reflect the issues confronting investors.  The Investor Advocate will act as the Chief Ombudsman for retail investors and increase transparency and accountability at the SEC.  The Investor Advocate will be best equipped to act in response to feedback from investors and potentially avoid situations such as the mishandling of information that could have exposed ponzi schemes much earlier. We also worked with our colleagues in the other Chamber to include an Ombudsman that will be appointed by and report to the Investor Advocate.

Mr. President, I also worked to include in the legislation clarified authority for the SEC to effectively require disclosures prior to the sale of financial products and services. Working families rely on their mutual fund investments and other financial products to pay for their children's education, prepare for retirement, and be better able to attain other financial goals. This provision will ensure that working families have the relevant and useful information they need when they are making decisions that determine their financial future.

Unfortunately, too many investors do not know the difference between a broker and an investment advisor. Even fewer are likely to know that their broker has no obligation to act in their best interest. Investment advisors currently have fiduciary obligations. However, brokers must only meet a suitability standard that fails to sufficiently protect investors.

In a complicated financial marketplace, for investors in which revenue sharing agreements and commissions can vary significantly for similar products, we must ensure that all investment professionals that offer personalized investment advice have a fiduciary duty imposed on them.
In 2005, I first introduced legislation that would have imposed a fiduciary duty on brokers.  I knew then that action was necessary.  I am proud that a vital investor protection was also included in the conference report that will ensure that a fiduciary duty is imposed on brokers when giving personalized investment advice. This change is necessary because it will ensure that all financial professionals, whether they are an investment advisor or a broker, have the same duty to act in the best interests of their clients.  Investors must be able to trust that their broker is acting in their best interest and we must not allow brokers to push higher commission products that may be inappropriate for a particular client. I appreciate all of the efforts of Chairman Frank, Senator Menendez, and Senator Johnson for all of their efforts on this important new investor protection.
Mr. President, this legislation also includes landmark consumer protections for remittance transactions. 

Working families often send substantial portions of their earnings to family members living abroad.  In Hawaii, many of my constituents remit money to their family members living in the Philippines.  Consumers can have serious problems with their remittance transactions, such as being overcharged or not having their money reach the intended recipient.  Remittances are not currently regulated under federal law, and state laws provide inadequate consumer protections. 

The conference report modifies the Electronic Fund Transfer Act to establish consumer protections for remittances.  It will require simple disclosures about the cost of sending remittances to be provided to the consumer prior to and after the transaction.  A complaint and error resolution process for remittance transactions would be established. I appreciate all of the efforts of the Chairman, Representative Gutierrez, and the Department of the Treasury for working with me on this important piece of the bill for immigrant communities.

Mr. President, this legislation also includes essential economic empowerment opportunities for working families.  Title XII, Improving Access to Mainstream Financial Institutions, is the most important economic empowerment provision in the bill. I appreciate the assistance provided by my friend from Wisconsin, Senator Kohl in helping me put this title together. I appreciate the support and contributions made to this title provided by Senators Schumer, Brown, Merkley, and Menendez.

I grew up in a family that did not have a bank account. My parents kept their money in a box divided into different sections so that money could be separated for various purposes. Church donations were kept in one part. Money for clothes was kept in another and there was a portion of the box reserved for food expenses. When there was no longer any money in the food section, we did not eat. Obviously, money in the box was not earning interest. It was not secure.

I know personally the challenges that are presented to families unable to save or borrow when they need small loans to pay for unexpected expenses. Unexpected medical expenses or a car repair bill may require small loans to help working families overcome these obstacles.

Mainstream financial institutions are a vital component to economic empowerment.  Unbanked or underbanked families need access to credit unions and banks and they need to be able to borrow on affordable terms.  Banks and credit unions provide alternatives to high-cost and often predatory fringe financial service providers such as check cashers and payday lenders. Unfortunately, approximately one in four families are unbanked or underbanked.

Many of the unbanked and underbanked are low- and moderate-income families that cannot afford to have their earnings diminished by reliance on these high-cost and often predatory financial services. Unbanked families are unable to save securely for education expenses, a down payment on a first home, or other future financial needs. Underbanked consumers rely on non-traditional forms of credit that often have extraordinarily high interest rates.  Regular checking accounts may be too expensive for some consumers unable to maintain minimum balances or afford monthly fees.  Poor credit histories may also limit their ability to open accounts. Cultural differences or language barriers also present challenges that can hinder the ability of consumers to access financial services. I also want to clarify that in Section 1204, small dollar-value loans and financial education and counseling relating to conducting transactions in and managing accounts are only examples of, and not limitations on, eligible activities.

More must be done to promote product development, outreach, and financial education opportunities intended to empower consumers.  Title XII authorizes programs intended to assist low- and moderate-income individuals establish bank or credit union accounts and encourage greater use of mainstream financial services. It will also encourage the development of small, affordable loans as an alternative to more costly payday loans.

There is a great need for working families to have access to affordable small loans.  This legislation would encourage banks and credit unions to develop consumer friendly payday loan alternatives.  Consumers who apply for these loans would be provided with financial literacy and educational opportunities. 

The National Credit Union Administration has provided assistance to develop these small consumer-friendly loans. Windward Community Credit Union in Hawaii implemented a very successful program for the U.S. Marines and other community members in need of affordable short term credit.  More working families need access to affordable small loans.  This program will encourage mainstream financial service providers to develop affordable small loan products. 

I thank the Banking Committee staff for all of their extraordinary work, including Levon Bagramian, Julie Chon, Brian Filipowich, Amy Friend, Catherine Galicia, Lynsey Graham Rea, Matthew Green, Marc Jarsulic, Mark Jickling, Deborah Katz, Jonathan Miller, Misha Mintz-Roth, Dean Shahinian, Ed Silverman, and Charles Yi.

I want to also express my appreciation for all of the work done by the legislative assistants of Members of the Committee, including Laura Swanson, Kara Stein, Jonah Crane, Ellen Chube, Michael Passante, Lee Drutman, Graham Steele, Alison O'Donnell, Hilary Swab, Harry Stein, Karolina Arias, Nathan Steinwald, Andy Green, Brian Appel, and Matt Pippin.

In conclusion, this bill will improve the lives of working families in our country because it will educate, protect, and empower consumers and investors.  Thank you, Mr. President.

-END-

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