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Financial Reform and Consumer Rights

Financial Reform and Consumer Rights

The financial crisis. In fall of 2008, newspapers around the world and in our community were reporting on a financial system on the verge of collapse with headlines that read “Panic Engulfs Markets”, “Stocks Plunge as Crisis Intensifies” and “Is It 1929 Again?”  Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and economists from across the political spectrum were warning that unless the federal government took bold action, we faced another potential Great Depression. 

During this time, I spent hours combing through opposing views, questioning economists, and reading comments from constituents worried about rewarding Wall Street recklessness on the one hand and preventing the collapse of their retirement savings on the other.  I wasn’t happy with the choices we faced—but correcting the  failed policies that brought us to this point was why I ran for Congress in the first place—and I took warnings about the economy very seriously.  That is why I voted in the best interests of our nation.

The day after the Troubled Asset Relief Program (TARP) bill failed in the House of Representatives (it ultimately passed 5 days later), we saw firsthand what inaction could mean when the stock market suffered its biggest single-day loss ever, wiping out $1.2 trillion, including funds invested by individuals into 401(k)s and pension plans.  

Through the TARP and other extraordinary steps taken by the federal government, we narrowly survived the largest global financial shock to ever hit the United States.  Since then we have suffered under a serious recession as a result of that shock and many good people have lost their jobs and their homes.  But we have avoided the 25% unemployment of the Great Depression, and even greater economic distress like that occurring in Greece and other European countries, that many recognized was possible. 

To the many still unemployed it is not enough to have saved the economy from a worse crisis, we need to grow the economy.  I have been working to ensure that those responsible for financial fraud are held accountable, taxpayers are paid back in full, consumer rights are upheld, and the system is reformed to prevent a repeat of the crisis.

Holding those responsible accountable. I have called for more investigations into financial fraud to ensure that where fraud exists it is uncovered and punished.  In testimony before Congress, the FBI has stated that mortgage fraud and other financial fraud (perpetrated by everyone from borrowers to investment bankers) played a major role in the bubble that led to the crisis.  The charges of fraud filed by the SEC against Goldman Sachs—for lying to pension funds and other investors about the investments they were selling—offer a small glimpse into the large-scale fraud believed by the FBI to have occurred.  I have called for a criminal investigation into the Goldman Sachs case and others to send a strong signal that financial fraud will not be swept under the rug and that the guilty will be held accountable.

Repaying the taxpayers and asking those who have benefitted from the rescue to do their part.  I have voted to require institutions that benefitted from the bailout to pay a fee until the full costs of the TARP have been returned to taxpayers.  Some financial firms argue they shouldn’t be asked to help cover any shortfalls in the program, even though they would not exist today had it not been for taxpayer support.   These firms have a moral obligation to repay the enormous debt they owe to the American people, many of whom are still struggling with unemployment, foreclosure, and economic instability caused by the financial crisis.   Nothing will change on Wall Street unless the firms responsible for the crisis are asked to pay for cleaning up the mess they helped create.

As I noted in a January 22 op-ed in the Lowell Sun, Wall Street has failed in its duty to keep credit markets open for American businesses, with the credit offered to small businesses decreasing even as lavish executive bonuses have returned.  Small business is the backbone of our economy, and that is why I have cosponsored legislation that would institute a tax on Wall Street bonuses in excess of $50,000 in 2010 and use that money for direct small business lending.  If Wall Street firms' return to windfall profits had simply been the result of savvy business, we would applaud their ingenuity.  That isn't the case, and it is time for them to recognize their moral responsibility to contribute to the recovery of our nation as a whole.

Standing up for consumer rights. After years of lax oversight, economists and regulators are recognizing that protecting consumers’ financial rights is critical to preventing another economic crisis.  I was an early supporter of legislation, now law, to end some of the worst abuses by credit card companies.  (To find out what this new law means to you, please see: Facts You Should Know About the CARD Act)

Now I am leading the effort for several important pro-consumer policies including:

  • Stopping banks from placing excessive wait times before giving you access to your deposited checks.  I introduced the Faster Access and Shorter Transaction Time for Checks Act (the“FASTT Checks Act”) to guarantee that you will be able to access your deposited funds sooner.  Under current law, a bank can place a 7 business-day hold on checks over $5,000 despite the fact that most checks are now processed electronically, giving banks almost instant access to your funds but delaying when you can access them.  Under my bill, hold times for electronically-cleared checks are shortened to 2 business days (including Saturdays) unless the bank has reason to suspect fraud or the account is repeatedly overdrawn.  (For more information and comments from Billerica resident Bruce Macdonald and consumer advocate Consumers Union, see my release. The FASTT Checks Act is endorsed by the National Small Business Association for its ability to help small business owners access their funds faster.)
     
  • Ensuring you are given the same access to your credit scores as banks and other lenders.  I wrote an amendment—passed as part of financial reform—that helps increase the ability of consumers to access their credit scores.  This amendment will help end practices like the one adopted by Experian in 2009 that give you access to only two out of your three primary credit scores while lenders examining your credit history get to see all three.  My amendment places consumers and lenders on a more level playing field, ensuring you have the tools you need to build and maintain good credit. 
     
  • Guaranteeing that a strong, independent Consumer Financial Protection Bureau exists to stand up for your rights.  I was at the frontof the pushto make sure the Consumer Financial Protection Bureau made it into the final Wall Street reform package signed into law this July because I believe you should have someone looking out for your interests.  Much like poisoned meat, contaminated pharmaceuticals, and toxic toys are no longer commonly found in the marketplace because there’s a consumer watchdog holding firms accountable, a similar watchdog is needed for predatory lending, hidden fees, and skyrocketing interest rates. 

Groups like the AARP have endorsed the idea of a strong CFPB because it will have the power to stand up for the little guy against the financial giants that have been able to set their own rules.  The CFPB will look out for your rights as a consumer, and will have the flexibility to respond quickly as new predatory tactics evolve. 

Finally, it will streamline the patchwork of rules that leaves community banks heavily regulated and mortgage lenders and check-cashers with little oversight whatsoever.  With everyone playing by the same rules, the CFPB will level the playing field for responsible institutions like community banks and credit unions that have lost ground to predatory lenders.  That’s one reason the Wall Street Journal calls financial reform a big win for community banks.

Many of these ideas came directly from residents of the 5th Congressional District.  I encourage you to contact my office with your ideas about how we can make the system work for consumers.

Reforming the system so that it never happens again.  The financial sector plays an important role in allocating money, investing resources into productive outlets, and helping households and businesses access the money they need to grow.  But in the last several decades we’ve seen a disturbing trend away from investing in productive ventures like clean energy and a move toward high-stakes gambling.  For our long-term success, I’ve been proud to tackle the reforms that will reorient our priorities.  Reform measures I helped enact into law will guarantee that financial firms have the tools they need to help grow the economy but also have the safeguards necessary to prevent another crisis.

Stopping future bailouts

In September 2008, AIG received an $85 billion bailout from the Federal Reserve with no congressional authorization or oversight. Wall Street reform legislation signed into law this July revokes that authority.  It also gives the Federal Deposit Insurance Corporation (FDIC) the same ability to dissolve troubled financial institutions that it has to dissolve troubled banks.  Failing banks IndyMac and Washington Mutual weren’t bailed out, they stopped existing.  They were dissolved by the FDIC, their executives were fired, and their assets were auctioned off.  This process would put an end to bailouts.

Creating one watchdog to oversee the whole system

During the 2008 crisis, no single regulator had authority to monitor the health of the entire system for threats or review firms’ complicated entanglements with each other.  I supported reform efforts that will fill the loopholes in our current patchwork of agencies, so that a watchdog accountable to the American people is tasked with evaluating potential threats as they arise and addressing them early before they grow unmanageable.

Shining sunlight on high-risk trades and require higher standards to address speculation that drives energy prices higher

Under Wall Street reform, the murky world of derivatives is brought into the sunlight by requiring every trade to be publicly registered and by raising the bar for non-standard trades.  One problem exacerbating the crisis was that firms had complicated entanglements that were not fully known (in many cases, even by the firm itself) until disaster struck.  Derivatives have an important role to play in hedging risk but they have become chips in high-stakes gambling, with players like AIG Financial arrogantly rolling the dice without understanding the risks.  Publicly recording these trades will make fraud much harder to hide because investors would know when a firm was betting against the same investment package it was telling investors was a solid deal.  As noted in a recent Wall Street Journal op-ed, even before the crisis came to head, rampant speculation in these markets was contributing to wild swings in energy prices, and bringing these trades under public scrutiny could be the single best thing we do to keep gas prices reasonable.

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