Flawed Consumer Protection, Part 2

I just wanted to respond to a comment to the blog I wrote yesterday on whether we need yet another regulatory agency in the financial services space.The reader made a very good argument in favor of the new agency-mainly that the existing ones basically weren't doing their jobs and that to suddenly give them consumer protection oversight, in his words, "stretches the limits of imagination and fits Einstein's classic definition of insanity."

He does make a good point. But my question is this. We do have an established regulatory regime in place with such a huge body of knowledge. Wouldn't it instead be better/more efficient to simply enforce the regulations that are on the books already and to maybe "clean house" at the existing agencies? Or is the "old buddy system" so well established in these bodies that doing either of those things would be nearly impossible?

Perhaps, though, the creation of the Consumer Financial Protection Agency is more symbolic than anything. These are by no means "normal times" for financial services and the industry certainly finds itself in a pickle. As Javelin Strategy & Research's Bruce Cundiff told me, perhaps establishing an agency dedicated to protecting consumers in the financial space is a good way for the new administration to show that it is doing something about today's economic troubles. And maybe down the road, Cundiff speculates, the CFPA may even be folded into the FTC and become a part of that agency.

I guess it's too early to tell either way. But it seems pretty certain that some kind of new agency will come into being once the dust settles.