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The House Financial Services Committee delayed action on proposed legislation to create a centralized Consumer Financial Protection Agency (CFPA). The legislation mirrors much of what the Obama adminisration has proposed to regulate financial products like those that led to much of our current situation. Pressure from financial industry organizations, as well as current regulators who don't want to cede power, caused the delay.
Elizabeth Esfahani, spokeswoman for the House Financial Services Committee said that the bill has been delayed because "[w]e want to give consumer groups and their allies time to engage in the same amount of lobbying as their opponents on Capitol Hill."
What lobbying is she talking about? The full court press put on by the financial services industry to put the breaks on the proposed CFPA. As CNN reported, financial services industry lobbyists see stopping this agency as their number 1 goal.
Elizabeth Warren, chairwoman of the Congressional committee overseeing bailout expenditures, is credited with the idea for the new agency. It would outlaw the riskiest financial products, and require clear explanation of terms -- such as page and a half credit card agreements that simply state the key terms. This would allow consumers to quickly compare, and to know how much risk they are taking.
Supporters see it as simply regulating potentially harmful financial products just like we do food, drugs and other consumer goods.
The financial services industry, however, has called from the rooftops that the new agency could stifle financial innovation.
Innovation as king remains a mantra in virtually all industries. We're used to thinking that new ideas, new products and new services are the way to go, because often that's right. The words "stifle innovation" make oone think of red tape preventing the cure for cancer.
But will people in these times (people in Congress particularly) buy the innovation at all cost argument for financial products?
Further, how much of what we're talking about is actually innovation? Is it really innovation to cook up new ways to pile up short term profits while making risks seem to disappear? Are new concoctions from investment bankers and ingenious new traps from credit card companies really the lifeblood of our economy?