Retired social worker Gloria Gray cut up her Capital One credit card in October and paid off the $500 balance. So she was surprised when Capital One sent her a $66 bill a few weeks later. She decided to pay, just in case. But the bills kept coming, bigger and bigger, month after month.
"I didn't owe them," says Gray, 76, of Charleston, W.Va. "I kept writing them letters. I would write on the bill: 'I have paid you. I do not have an account with you.' "
Frustrated, she took her case to the West Virginia state attorney general's office, which had received hundreds of similar complaints about Capital One. But the state attorneys were powerless. A court last year had ordered them to stop pursuing allegations of "unfair or deceptive practices" after Capital One swapped its state banking charter for a federal charter and became a national bank. Under the patchwork regulatory scheme covering the U.S. financial services, state attorneys no longer had jurisdiction over Capital One.
The Obama administration thinks it has a solution for consumers like Gray, who struggle to find someone to pursue their complaints against banks, credit card issuers, mortgage brokers and other financial firms. As part of a massive overhaul of the financial regulatory system, the administration wants to create an independent agency to police the financial marketplace on behalf of consumers.
The proposed Consumer Financial Protection Agency (CFPA), which faces fierce resistance from the banking industry and Wall Street, would have power to:
•Write a consistent set of rules to protect consumers from abusive practices.
•Examine financial institutions to ensure they comply with consumer laws and regulations.
•Enforce the law, sometimes seeking civil penalties for a victims' relief fund.
Assuming power and personnel from bank regulators, the agency would cover everything from mortgages to savings accounts to PayPal. Its reach would extend to non-bank payday lenders and mortgage brokers that have gone largely unregulated. States would still regulate insurance. The Securities and Exchange Commission would still oversee financial markets.
"It can change the financial marketplace," says Michael Barr, assistant Treasury secretary for financial institutions. "The system had nobody to look out for consumers across the board."
Under the plan, states could enforce even stricter financial regulations if they wanted to.
50 different state standards?
Opponents say the agency proposal would just create another layer of red tape, unnecessarily divide consumer regulators from regulators assigned to keep banks from taking on too much risk, smother innovative financial products and create uncertainty by exposing banks to 50 different state standards.
"We want to protect consumers. The CFPA doesn't accomplish that goal," says Scott Talbott, lobbyist for the Financial Services Roundtable, which represents big financial companies such as Citigroup, GMAC Financial and Capital One. "Each state could write its own laws. This will destroy uniformity, increase costs and confuse customers."
But supporters say the time is right for a financial version of the Consumer Product Safety Commission, which regulates everything from toys to toasters.