Pro & Con: Does the U.S. need a consumer financial protection agency?

As owners of a financial advisement firm with offices in Portsmouth, N.H., San Francisco and New York, we focus on financial products with sustainability, values and transparency. And with more than 70 years of collective experience in the financial services industry, and many clients owning small businesses, we’ve long known that what’s good for Wall Street isn’t necessarily good for small businesses and consumers.

Through irresponsible lending, greed and poor risk management, huge Wall Street investment firms and banks brought about a financial crisis that’s resulted in massive unemployment and hardships for millions. But while small businesses have borne the brunt of the downturn, it is they who will create the jobs that rebuild our communities.

Ability to access affordable credit with clear and concise contractual language is imperative. Studies have shown that most small businesses are financed through the personal credit of their owners, yet ubiquitous tricks and traps of credit cards and consumer loans have snared small business owners just as they have individuals. What’s worse is that large banks and credit-card companies have unilaterally withdrawn credit from small business owners just when they need it most — and they’ve done so regardless of credit and payment history.

A consumer financial protection agency (CFPA) that safeguards financial products and services is long overdue. We all rely on sound business practices when we expand our businesses, hire new workers, meet payroll and do long-term business planning.

Business owners need the security of knowing that the financial services they receive from one lender carry the same level of protection as those from any other, and that all lenders — credit cards, trade credit and independent finance companies included — are offering fair financial services.

It’s wrong to think the choice lies between consumer protection and a sound environment for banking — as if these issues could ever be mutually exclusive. Any legitimate industry can prosper under fair regulation simply by offering products and services that users understand and can purchase without being tricked. Our economy and the financial sector will prosper over the long haul only if financial transactions no longer include deception, profiteering and excessive risk-taking. The current lack of consumer protection has helped plunge our banking system into crisis, wreaking havoc on millions of individuals and families.

Financial reform that includes a strong independent consumer financial protection agency will end the reckless use of financial products that has stalled small-business expansion and necessitated countless layoffs. Transparency and accountability must be applied to financial markets. A CFPA will help the economy and those financial companies already practicing fair policies. No longer will responsible firms need to compete against those that profit from unscrupulous practices, unfair terms and deceptive marketing.

A CFPA is good for business, good for the economy. It’s a core element of financial reforms wending through Congress. And anything less than a strong, independent consumer financial protection agency will perpetuate whatever sense of mistrust Americans already have in Wall Street and government.

David Hills is a partner with Veris Wealth Partners LLC in New Hampshire. Michael Lent is a partner of Veris Wealth Partners in New York.

NO: New bureaucracy will limit services that banks can tailor to customers.

By Joe Brannen

No one wants another financial crisis, and bankers, consumers, the White House, Congress and regulators of all stripes agree financial reform is needed.

The legislation pending in Congress takes some positive steps toward ending too-big-to-fail financial institutions and closing regulatory gaps that allowed non-banks to create huge problems for the economy. But it stops short in several areas and goes overboard in others.

Traditional banks didn’t bring about the financial crisis. Their mission is, as always, to serve their local community and make credit available to consumers and small businesses. The bill before the Senate unfortunately contains provisions that would hinder their ability to do this effectively and to provide the credit the local economy so badly needs.

Consider the proposal to create a new consumer financial protection bureau. It sounds great in theory, and bankers strongly support improving consumer protections, especially for those consumers who patronize nonregulated shadow-banking businesses.

Consumers of traditional bank products already are among the most protected consumers there are. Congress and regulators already write, change and enforce needed new protections for those consumers. But not so for the shadow-banking customers.

Traditional banks and their employers must comply with more than 1,700 pages of consumer regulations every day. That’s about 37 pages per employee of the median-sized Georgia bank. The new bill would tack on 27 more provisions to that already heavy regulatory burden that will have a disproportionate impact on our smaller, community banks

Creating a new bureaucracy will produce more problems than it will solve by putting the government in the business of deciding what products are right for bank customers.

It’s not a stretch to imagine that community banks could reasonably conclude that it is not worth offering some checking accounts, savings programs, home equity loans or products that are specifically designed for their local markets because they don’t have the bureau’s stamp of approval.

This kind of invasive oversight undermines the essence and strength of community banks — namely, the relationships they have with their customers. How can they adhere to their mission if they can’t tailor products to meet the specific needs of their customers? What works in Massachusetts may not work in Georgia.

Then there is the issue of uneven enforcement. The new consumer rules would apply to both banks and nonbanks, but enforcement against these nonbanks, many of whom contributed to the economic crisis, would be weak or nonexistent in many cases. In fact, Wall Street products, services and activities regulated by the Securities and Exchange Commission are specifically exempted from the new legislation.

How does that protect consumers from mortgage brokers or other financial entities outside the traditional banking industry that made a disproportionate share of toxic loans and engaged in ultrarisky trading practices? It doesn’t.

There are other concerns. The bill also contains provisions that will make credit less available for consumers and small businesses, and it doesn’t provide adequate oversight of accounting rules that greatly worsened the crisis.

Bankers support financial reform, but it needs to be done right — and it especially needs to be done with an eye toward the impact on communities. These issues are important and vigorous, bipartisan debate should be encouraged. The consequences of getting reform wrong are too great to be treated lightly.

Joe Brannen is president and CEO of the Georgia Bankers Association.