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Lawmakers joined community and labor leaders yesterday to demand consumer protections against financial abuses on Wall Street.
While the group said the protections need to be enacted on a federal level, they pointed to immediate proposals on the state level, including a bill that would require mortgage holders to first attempt mediation with borrowers before foreclosing on their property.
Senate Bill 45 has been introduced by Senate Majority Leader John Morse, D-Colorado Springs. In addition to requiring mediation before a holder can foreclose on a person’s property, the bill would also increase the foreclosure notification period to borrowers from 30 days to 60 days, giving borrowers an extra month to negotiate a solution that would keep them in their home.
Morse calls it a “moral hazard” for lenders to issue loans that they know can’t be repaid only to collect a fee on the transaction. He said requirements are needed to ensure that lenders and holders don’t then immediately force people out of their homes when the loan can’t be repaid.
“Hard working families across this country end up signing on the dotted line when they really aren’t going to be able to repay that loan sometime in the future. So, we end up with a foreclosure, the families’ equity goes down Ń in fact it goes to zero Ń now they have a foreclosure on their account, and they no longer have a home,” said Morse.
“We don’t want people to lose their homes,” he continued. “That’s the fabric of our society, the fabric of our economy, and to foreclose when there’s a better option is never a good choice. Unfortunately, we’re having to legislate common sense and fairness in lending practices.”
Attempts to contact officials with the Colorado Mortgage Lenders Association were unsuccessful yesterday because they were in a closed-door executive board meeting.
Meanwhile, community leaders and Democratic lawmakers are also pushing for Congress to establish a new independent consumer financial protection agency that would “rein in Wall Street abuses.” The proposal is expected to be formally debated by the Senate Banking Committee sometime next week.
Senate Banking Committee Chairman Chris Dodd, D-Conn., is holding closed-door negotiations with his banking committee members on proposals to tighten the oversight of the financial industry and strengthen rules to prevent a repeat of the financial crisis. U.S. Sen. Michael Bennet, D-Colo., sits on the Banking Committee.
Local proponents are encouraging Bennet to push for the consumer financial protection agency and for increased oversight to prevent the sort of reckless betting on the property market that tipped the financial system to the brink of collapse in 2008.
“We know that for too long Wall Street has been able to engage in reckless behavior that has indebted our families and put our economy into crisis,” said Danny Katz, state director of the Colorado Public Interest Research Group.
He and fellow supporters of the proposed increased oversight say it is wrong for lenders to approve loans they know won’t be repaid; for credit card companies to change policies and increase rates without reason; and for banks to charge overdraft fees without notifying customers that they have overdrafted their account.
Republicans oppose key parts of the oversight plan, which is being heavily supported by President Obama. They not only oppose tightening rules on financial firms, but also an Obama proposal that would impose a financial responsibility fee on banks to recoup billions of dollars taxpayers spent on corporate bailouts.
Obama yesterday met with advisors and lawmakers to call for new restrictions that would limit the size and trading activities of banks and other financial institutions as a way to reduce risk-taking.
“While the financial system is far stronger today than it was a year ago, it is still operating under the exact same rules that led to its near collapse,” the president said yesterday in a statement. “My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.”
Obama would like to ensure that no financial institution operate solely for their own profit. His proposal would call for financial institutions to choose between commercial banking and proprietary trading for their own profit. The president’s proposal would prevent some financial institutions from owning and investing in hedge funds and private equity firms.
A second proposal would expand a 10 percent market-share cap on deposits to include other liabilities, including non-deposit funding. The idea is to restrict growth.
The House has already passed a financial regulatory reform measure, while the Senate Banking Committee is working on its own version.
Rep. Mark Ferrandino, D-Denver, spoke in favor of such reform yesterday, arguing that Washington needs to get the job done so that average Americans don’t get taken advantage of by Wall Street executives.
“All across Colorado, families are struggling given the collapse on Wall Street and the implications of the businesses into the economy É the reckless behavior of big banks on Wall Street, credit card companies and irresponsible consumers caused the financial crisis that cost Americans millions of dollars, billions of taxpayer dollars in bailouts and trillions in lost retirement savings,” said Ferrandino.
“We need financial reform that will hold corporations, big banks and individuals accountable by reining in greedy, reckless behavior on Wall Street,” he continued. “We need Congress to act.”
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