Patricia Nelson took out a $550 payday loan in December 2007. By September 2009, she had rolled the loan over more than 22 times, and paid upwards of $2,700 in interest alone. In the wake of the messy and catastrophic financial market meltdown of 2008, President Barack Obama invited the 64-year-old to the White House. Nelson was a living, breathing representative of the dark side of the financial services industry–which Obama and his Democratic colleagues in Congress are trying to regulate with a new Consumer Protection Financial Agency (CFPA), designed to stop abusive practices like the one that took Nelson and so many other African Americans for a ride.
Following the Obama White House’s directive for comprehensive financial regulatory reform, the House of Representatives has already passed a blueprint for a new, independent watchdog agency modeled on the same regulatory principles that ensure food and appliances are safe for American consumers. Having lost Republican co-sponsors during the Senate negotiation process, Banking Committee chairman Sen. Chris Dodd (D-Conn.), has just released his own draft bill containing similar new regulations addressing hedge funds, the derivatives marketplace, executive pay, failing banks and systemic risk-as well as a vision for the new agency.
In both House and Senate bills, the proposed CFPA would centralize and standardize the rules for lending among banks and non-banks (such as payday lenders, pawn shops, auto dealers, and the like) in a way aimed at providing and enforcing protections for Americans looking to borrow money. Under the status quo, the financial services industry is subject to a patchwork of rules run by seven agencies, that allow some lenders to comparison shop for the most lenient terms of lending–and slam consumers with high interest rates, deceptive banking fees, retroactive penalties and interest rate hikes, and other ills. The CFPA would change that. “It’s not about bigger government,” says Austan Goolsbee of the president’s Council of Economic Advisers, but rather “streamlining the rules of the road and creating a clear accountable government office that’s going to make sure these kind of shenanigans never get us to a place where they can take down the economy.”
The bill, still working its way through Congress, is under fire from the left (for sacrificing independence to the Federal Reserve and a “systemic risk council”), and from the right (for agitating the powerful lending lobbies and the U.S. Chamber of Commerce, which is adamantly against the CFPA). But when it comes to the creation of the CFPA, “the stakes are extraordinarily high for communities of color,” says Heather McGhee, Washington Director of DEMOS, a progressive think tank. “Not just because of racial targeting, but because African Americans and Latinos have lower incomes and lower wealth. We rely on debt more because we don’t have savings to turn to,” she says.
Indeed, the statistics on financial solvency and literacy for African Americans are not encouraging. One-fourth of black women do not have bank accounts, and, as The Root has reported, single black women have “zero or negative” median wealth. Troubles with savings aside, that negative wealth results from the debt burden that has become a central part of the modern American economy, making the top credit card issuers almost $6 billion in profits in 2008–despite the market collapse. (Overdraft fees on 37 million debit cards linked to checking accounts, for example, provides about $20 billion in revenue for Bank of America every year.)