Prepared Statement of Patricia A. McCoy Before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Hearing on 'Consumer Protections in Financial Services,' March 3, 2009

Abstract

The testimony proposes transferring consumer protection responsibilities for consumer credit from federal banking regulators to a single, dedicated agency whose sole mission is consumer protection. During the housing bubble, the U.S. system of fragmented regulation drove lenders to shop for the easiest legal regime. The ability of lenders to switch charters put pressure on banking regulators - both state and federal - to relax credit standards. The result was regulatory failure, in which federal banking regulators sacrificed prudent lending standards and consumer protection for the short-term profitability of banks. Creating one, dedicated consumer credit regulator charged with consumer protection would establish uniform standards and enforcement for all lenders and help prevent another collapse in credit underwriting. The testimony closes by proposing vesting states with concurrent enforcement authority.

Keywords: consumer protection, subprime, regulatory failure, bank regulation

JEL Classification: G18, G21, G28, K20, K23, L51