The Common Good

A Neighborhood View of Consumer Financial Protection

As someone who lives in Cleveland -- which in some years is identified as the poorest city in the U.S. -- I have seen how banks, mortgage companies, payday lenders, and other financial institutions have been grinding into the dirt a lot of folks who were already struggling. Of course, there are also the unexpected and escalating fees on our credit cards, debit cards, and other types of loans that affect all of us, regardless of income level. But there is hope. This week the Senate is considering the creation of a strong and independent consumer financial protection agency as part of a bill that would strengthen regulation of the banking industry. It can't happen too quickly.

Until Ohio's voter-approved payday lending reform is fully enforced, our state continues to have more payday lending outlets than the combined number of McDonald's, Burger Kings, and Wendy's fast food franchises. Like most poor neighborhoods, we have no shortage of fast food. We just have even more payday lenders preying on folks.

At the end of 2009, one in six Ohio homeowners with a mortgage was either in foreclosure or delinquent in their mortgage payments. This is in addition to the folks who have already lost their homes. In Cleveland, an estimated one in 13 homes is vacant, although the county treasurer says it is closer to one in nine.

Re-regulating all the various financial institutions is one of the most important things Congress needs to do. As an economist I know the last 10 years or so have been an aberration in the modern history of the banking industry. We need new regulations that will bring this era to an end and prohibit the practices that nearly crashed the world economy.

We have learned that the banks' enormous profits stemmed from very high-risk activities which were unleashed by deregulation and under-regulation. Age-old problems of usury, fraud, racist lending, and extraordinary greed went unchecked. As new financial institutions and practices developed, regulation (and regulators) failed to keep up.

Trillions of dollars cycled through the financial institutions. Some of the money paid for new homes which today may be vacant or worth less than the value of the outstanding mortgage. But overall, there was little investment in new businesses, infrastructure, research and development, or other things with lasting value. Instead much of the money was used for speculation.

Our ravaged communities display the impact of these practices. The frenzy of financial speculation and fraud has left behind enormous pain and stunted lives. Our children and young people may be the most severely impacted. Unemployed parents are stressed, depressed, afraid, and possibly homeless; these traits do not form a basis for good parenting. Children's opportunities are constrained by fallen incomes. Young adults, who are bearing half of the net job losses, cannot find employment. Research shows their career paths and earnings will likely never recover from the harm of entering the job market during such a downturn. Neighborhoods -- especially those of the working class and people of color -- have been devastated by foreclosures and the growing number of vacant homes.

To address the risky, fraudulent, and usurious dealing that led to our current financial crisis, the Senate needs to pass a strong package of reforms that will restore integrity to our financial markets. We need to protect consumers, ensure greater oversight of all types of financial institutions, regulate all derivatives, break up the too-big-to-fail banks, establish an orderly process to unwind failing mega-banks using funds from those same banks, end proprietary trading, and empower shareholders to rein in executive compensation.

The banking frenzy that brought pain and destruction to millions of people in the U.S. and billions around the world did not have to happen. It must not happen again. People of faith are called to act, to work to end the deceptive, risky, and fraudulent practices that caused the financial crisis.

Edith Rasell is minister for economic justice with the Justice and Witness Ministries of the United Church of Christ.

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