What Dodd's Consumer Reforms Mean for You

Chris DoddIt's on. The U.S. Senate is finally taking up financial reform. And believe it or not, there's a lot in its 1,300-plus page bill to like – and to defend from lobbyists mobilizing to tear it apart. So listen up, and put your senator and congressman's numbers in your speed dial.

Yesterday Sen. Christopher Dodd (D-CT) unveiled his long-awaited financial reform bill, including a consumer watchdog agency to make sure that borrowers' bank accounts don't become ATMs for greedy mortgage lenders and credit card companies. Predatory lending and other abuses, Dodd reminded reporters at a press conference, "had become almost standard operating procedure" in the lending business.

You know that. I know that. But it's new to hear such strong words from Dodd, the chair of the Senate Banking Committee and, in the eyes of many critics, a pal of the finance industry. Dodd has decided not to run for reelection this fall, and that appears to have freed him to put the heat on bankers.

Dodd's bill is far from perfect. It keeps the U.S. stuck with four separate banking regulators, when it needs one streamlined agency. To get support from Banking Committee minority leader Richard Shelby (R-AL), Dodd had to agree to make the consumer watchdog a "Bureau of Financial Protection" inside the Federal Reserve, instead of an independent agency. That has some consumer advocates worried, because the Fed under former Chair Alan Greenspan refused to meaningfully regulate subprime lending.

But actually, as Dodd stressed yesterday, putting the watchdog inside the Fed has a silver lining, because the Fed is not overseen by Congress. The budget for the watchdog would be set by law, and safe from political meddling by congressmen on the banking industry's payroll. Congress would still get regular reports on its work and on consumer complaints.

All pretty good. Right now, though, members of the Senate Banking Committee are about to get their mitts on Dodd's bill. Whatever form it passes the Senate in -- which will likely look quite different than what's there now -- the measure will then get reworked again to mesh with the already passed House bill, which tilts much more in favor of lenders.

Take back Congress from lobbyists! Come prepared with your own demands (that's what they do), and make them heard before it's too late. Here are some for starters:

* States must be able to enforce strong consumer protections. The Senate bill allows states to crack down on lenders who violate the new regulators' rules, and to establish their own, stronger protections. That's essential. From four years starting in 2004 federal banking regulators blocked states from taking action against out-of-control lenders, and...well, I don't need to tell you what happened. Like the House, the Senate now wants to allow the regulator to override state consumer protection laws in certain circumstances, but the Senate version is much better -- it makes sure that the federal rules are as strong or stronger than the state law it shoves aside.

* All types of lending need to be included. Period. Right now the Senate makes that clear. The House exempted auto lenders. Payday lenders from Sen. Bob Corker's home state of Tennessee will no doubt demand their own exemption. Who's next?

* Keep an eye out for discrimination. One big win for the bankers: the new bureau can't enforce the Community Reinvestment Act, the law that makes sure banks lend fairly in areas where they do business. Instead, the new bill establishes an "Office of Fair Lending and Equal Opportunity" to make sure lenders don't discriminate against credit-worthy customers. That has to stay in.

* Get rid of a giant loophole. Right now, the bill includes vague language allowing the consumer bureau to exempt pretty much any category of lender or broker, at its discretion. That's ridiculous.

* Transparency, transparency, transparency. The good news: Lenders and brokers have to share information about a loan with borrowers, on demand. Make sure it stays that way. Not as good: The Bureau is only required to issue one public report a year. One! What is this, 1950?

* Usury should be illegal, period. Dodd's bill forbids the consumer bureau from capping interest rates charged to consumers. Why?

It's never too soon to get started being your own lobbyist. Here's who sits on the Senate banking committee. The bill goes through its first review session this Monday. Let Congress know who's boss.
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