Restoring Trust in Banking
Published: July 28, 2009
To the Editor:
Bob Herbert's call-out of the malefactors of great wealth ("Chutzpah on Steroids," column, July 14) rings true - at least to this banker.
As the president of the oldest and largest bank headquartered in Philadelphia, I am absolutely mystified by the outcry of big banks and lobbyists over the proposed Consumer Financial Protection Agency Act of 2009. The education and disclosure provisions of the act represent an opportunity for our entire industry to return to our primary mission: educating customers to do the right thing financially.
Our industry lost its credibility by putting its own interests ahead of its customers. What could be better than to clearly define all banking products in terms of features, benefits, potential risks and real costs?
This is not to say that I support this legislation in its totality. I have great concern about consumers unfairly bearing the cost of a sweeping new bureaucracy.
But what banker in his or her right mind can argue against transparency, consumer education or data security?
Those banks that caused our problems need to step aside. It's time to go beyond a return to old-fashioned banking. It's time to restore trust between banks and the customers we serve.
Gerard P. Cuddy
President and Chief Executive
Philadelphia, July 16, 2009
VIEWPOINTS: Foes of Consumer Agency Blind to Trust Problem
BYLINE: Jack Stack
At a time when the most important consumer banking brand in the United States is the FDIC and the American consumer believes that bankers are overpaid, dishonest and not interested in service, the banking industry must embrace the Consumer Financial Protection Agency. This support for the CFPA is not because some form of legislative approval is inevitable, but because the American consumer needs the protections that such an agency would provide.
The American consumer has lost trust in the banking industry and rightfully so. Over the past five years the industry as a whole has proven unworthy of the consumer's trust. Without huge assistance from the government, the banking and financial service industries would have failed in 2008 and 2009. Without deposit insurance, consumers would be keeping their hard-earned cash at home underneath their mattresses.
Time and time again, banks have tried to maximize profits by selling inappropriate products to the American consumer, by offering too many of the same type of products to unsuspecting consumers, by failing to take seriously the bank's responsibility to educate consumers, by issuing rules and regulations that even lawyers cannot understand and by not helping consumers who get into trouble because of the products that banks sell them.
With this complete lack of trust growing in a global recession and with this history of taking advantage of the American consumer, what is the reaction of the banking industry? Banking trade groups are mounting a campaign to battle against the Obama administration consumer protection proposals. Mortgage loan modification efforts have been abysmal.
Credit card rates are increasing and lines of credit reduced with little concern for the individual consumer. Loan applications are dwindling because banks have tightened the underwriting criteria to such an extent that creditworthy applicants are being turned away.
The banking industry must recognize the current situation (it's bad) and must embrace the concept of the CFPA. The splintered efforts of government agencies thus far have proven too little and too late. Why has the current approach not worked? The answer is easy. The Federal Reserve and the other regulatory agencies have never seen as their primary mission the protection and education of the consumer. Therefore, consumer protection was a very low priority, and the consumer was left without any protective oversight.
Some bankers opposed to the concept of a new agency complain that these unfair practices did not take place at their individual institutions.
America needs the CFPA because the banking industry will never regain the trust of the American consumer without an impartial oversight agency which is perceived as the ombudsperson and the protector of the consumer.
The agency must be mandated to create a level playing field where the rules and regulations are understandable, transparent and brief. The agency must work with the industry to simplify rules and regulations and to identify misleading and inappropriate products and marketing. Its work will lead to both a better-educated consumer and a consumer who will want more financial products because they will be easier to understand and will have the approval of the CFPA.
The CFPA is neither about political warfare between Democrats and Republicans nor about overreaching intrusion of the federal government into industry. It is about correcting unfair practices, about a better-educated consumer and about rebuilding trust in financial services and the market economy.
The banking industry must get behind the CFPA before its opposition increases the consumer's disenchantment with financial services.
Jack Stack was the chairman and CEO of Ceska Sporitelna, the largest bank in the Czech Republic, from 2000 to 2007. Before that he spent 22 years with Chemical Bank and its successor Chase Bank.