Regulatory Reform

New Foundation, New Stability

Introduction

Over the past two years, our nation has faced the most severe financial crisis since the Great Depression, with communities of color suffering disproportionately from our regulatory collapse. Millions of people have lost their jobs, their homes, and their small businesses. Billions of dollars in assets have been stripped from already asset poor families. The crisis has forced many in the middle class to join the poor.

The Financial Regulatory Plan unveiled by President Obama on June 17, 2009 (New Foundation, New Stability) is an excellent start to a sweeping and necessary set of regulatory reforms that will protect consumers and our economy from future economic collapses. Following are our observations, concerns, and suggestions.

Necessary Steps to Ensuring a Strong Consumer Financial Protection Agency

Communities of color have long been the "canaries in the coal mine." We felt the dangers of the subprime crisis long before the rest of the country did. Greenlining and other advocates warned the Federal Reserve of some of these dangers far before the credit collapse. (Fed Shrugged as Subprime Crisis Spread) Unfortunately, the regulators paid little to no attention, to the detriment of our communities and the economy as a whole.

Greenlining strongly supports the creation of the Consumer Financial Protection Agency, especially one that incorporates the views and voice of asset-poor communities. Over the next few months Greenlining will work to ensure that:

• The agency has real enforcement powers.
• The agency is independent of party politics.
• The agency leadership is diverse and reflective American consumers, not just financial sector leaders.
• The agency has clear mechanisms to allow consumers and consumer groups to play key roles in the governance and accountability of the agency.
• The agency insists on transparency in lending and financial services and has a process to make all relevant data publicly available on a timely basis.
• The agency extends oversight to non-bank financial sector actors, like credit card companies, private student loan companies, insurance companies, check cashing companies, and more.

A Major Concern with the Proposed Plan: Potential Restriction of Access to Credit for Communities of Color

The Greenlining Institute is very concerned with one aspect of this plan: if these reforms are enacted without special attention to the most vulnerable, unbanked communities - especially communities of color - they may have the unintended consequences of restricting access to credit to the very communities they were designed to help.

It is imperative that the policies set forth by the new agency do not stifle creative efforts to build wealth and assets amongst the working poor. New regulations must be smart for our communities; misguided regulation or onerous capitalization requirements will result in restrictively tight credit standards that effectively keep out low-income communities and communities of color from the credit market. For example, there are innovative, emerging models for (non sub-prime) lending to make the American Dream of home and business ownership accessible to marginalized communities. This agency must not limit this innovation.

A Welcome Expansion of Additional Powers for the Federal Reserve, But Only If These Are Accompanied By More Accountability and Independence

Greenlining supports the delegation of additional power to the Federal Reserve, but on the condition that there exists a clear path of transparency and accountability between the Federal Reserve and the other agencies and policymakers.

An End to "Shopping Around" By Banks for Regulation

Though Greenlining has had a good working relationship with the Office of Thrift Supervision, we support President Obama's plan to abolish the agency. With the current regulatory structure, it has been too easy for banks to "shop around" for the regulatory agency that provides the least regulatory oversight. With one less agency in place, the ability to "shop around" will be limited, therefore increasing accountability of the financial institutions.

Beyond Regulation: Helping Working Families Build Wealth and Assets

Low-income communities and communities of color have historically been barred from many of the most common asset-building tools used by middle- and upper-class communities. In this light, Greenlining appreciates President Obama's proposal to make retirement saving more accessible to all Americans, as well as to enhance tax incentives for retirement savings for families that earn less than $65,000 a year.

Greenlining applauds this first step in federal wealth building policy and will work with the Obama Administration and the regulatory agencies to recommend additional asset building measures in the coming weeks.

What's Missing From This Plan

Despite the comprehensive nature of this plan, some key elements to protect low-income consumer and consumers of color are missing. We would strongly encourage inclusion of the two following items to the plan:

• A detailed list of previously-unregulated (or lightly regulated) industries and institutions now considered "systemically important" for the purpose of new regulation, like hedge funds.
• A clear explanation for how the Community Reinvestment Act (which requires depository institutions to meet the credit needs of the communities in which they operate, and is currently pending modernization and expansion in Congress) will be applied to newly-regulated institutions that directly impact consumers ... like insurance companies, check cashiers and payday lenders, credit unions, and other Fortune 50 companies that have been recently deemed "too big to fail" because of the impact their failure could have on the overall economy.

Moving Forward

We are very encouraged by the strong start this plan represents. With a responsiveness to our suggestions and concerns , we believe this comprehensive approach will promote greater financial stability and mobility for those marginalized Americans most impacted by the current financial crisis, and the American economy as a whole. We will be reaching out to you for your support to make President Obama's plan stronger and a reality.