As mentioned in a prior section, Congress should pass legislation to create a Consumer Financial Protection Agency (CFPA). Recourse for individual consumers must be a key goal of any new consumer protection system. The Obama Administration’s plan appropriately states that the private enforcement provisions of existing statutes will not be disturbed, and that H.R. 1705 will leave these protections intact and unchanged. But, the Administration’s plan failed to address the enforceability of new CFPA rules. It’s critical that consumers who are harmed by violations of these rules be able to take action to protect themselves. H.R. 1705 provides a right of action for consumers to enforce these rules.
Consumers must have the ability to hold those who harm them accountable for numerous reasons:
• No matter how vigorous and how fully funded a new CFPA is, it will not be able to directly redress the vast majority of violations against individuals. The CFPA will likely have thousands of institutions within its jurisdiction. It cannot possibly examine, supervise or enforce compliance by all of them.
• Individuals have much more complete information about the effect of products and practices. Quite often they are in the best position to identify violations of laws, take action, and redress the harm they suffer. An agency on the outside looking in often will not have sufficient details to detect abusive behavior or to bring an enforcement action.
• Individuals are an early warning system that can alert states and the CFPA of problems when they first arise. These alerts would come before they become a national problem requiring the attention of a federal agency. The CFPA can monitor individual actions and determine when it is necessary to step in.
• Bolstering public enforcement with private enforcement conserves public resources. A federal agency cannot and should not go after every individual violation.
• Consumer enforcement is a safety net that ensures compliance and accountability after this crisis has passed, when good times return, and when it becomes more tempting for regulators to think that all is well and to take a lighter approach.
• The Administration’s plan correctly identifies mandatory arbitration clauses as a barrier to fair adjudication and effective redress. It’s also critically important to access to justice that consumers have the individual right to enforce a rule.
Private enforcement is the norm and has worked well as a complement to public enforcement in the vast majority of the consumer protection statutes that will be consolidated under the CFPA. Conversely, the statutes that lack private enforcement mechanisms are notable for the lack of compliance.
The ideal consumer protection would be a combination of strong federal, state, and individual laws with each having enforcement capabilities. In my opinion, individual enforcement is critical to making the consumer protection regime work.
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