Mark Winston Griffith

Time for Regulators and Legislators to Regulate and Legislate

If you go around the country and monitor the activity of state and federal governmental agencies that regulate financial institutions, you might be lulled into thinking that there is a fierce effort to guard low-income consumers from the evils of things like pay day lending, refund anticipation loans (RALS), exotic mortgages and other sleazy products that charge more, for less, to people who can least afford it. For instance, our own New York State Banking Department issued an Request For Proposals for financial literacy programs more than a year ago that pays non-profit organizations to help consumers navigate their way around the banking and financial services system. In North Carolina, arguably the most progressive banking state in the country, the governor issued a public warning to consumers designed to help them guard against usurious and predatory refund anticipation loans.

This is great and certainly laudable, but rather than hoping that consumers are "educated" enough to hop scotch their way around noxious loans, our legislators and regulators - the New York State Banking Department, the Federal Reserve, the Office of the Comptroller of the Currency - need to focus their attention on doing what the public has entrusted them to do: Create and monitor a financial services system that protects the consumer.

Robert H. Frank made the argument in yesterday's New York Times that "[t]hose concerned about the growing culture of consumer debt need to recognize that it stems far less from the greed of lenders than from recent liberalizations of lending laws. Since biblical days, societies have imposed limits on the terms under which people can borrow money. A wave of deregulation in the financial industry has eliminated many of those limits."

While Frank is misguided in suggesting that less time should be spent going after financial institutions for the predatory practices, he does make the point that only by changing the system itself can we hope to stem abusive lending.

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Posted at 10:18 AM, Jan 19, 2007 in
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