Potential Concerns about the Consumer Financial Protection Agency
Despite the multitude of benefits revealed by the CFPA, commercial banks and mortgage lenders continually present their growing dissatisfaction with the act. Representatives of this side include reputable organizations such as JP Morgan Chase or Wells Fargo, as well as a series of independent mortgage brokers and mortgage lenders and local and regional banking institutions. Their most compelling reasons for the dismissal of the Consumer Financial Protection Agency are succinctly presented below:
1. The banks feel that there is no real necessity for new regulatory legislation as the economy is already showing sighs of recovery; these financial institutions feel that the resources would be better spent otherwise. Additionally, the CFPA does not introduce any real new elements, but politically enforces the lessons already learnt from the economic crisis
2. The state could abuse its power through the Consumer Financial Protection Agency in the meaning that it could impose too large and severe restrictions upon the actions of banking institutions and mortgage brokers and lenders. Such protectionist measures would generate significant negative impacts upon the profits of the financial institutions (which consequently materialize in lower taxes and as such lower incomes to the state budget), and would also restrict the consumers' access to financial products and services; it would also stifle the creativity of financial specialists and would lead to a decrease in the formation of new financial products and services
3. The financial institutions, through the mouth of the American Bankers Association, not only state that the new agency, through its regulations, would make credits less available to the general population, but also argue that it would make the credits more costly (Hall, 2009). In terms of the impact of such an outcome, the living standards of the population are expected to decrease and the economy is likely to decrease due to a restricted access to the necessary borrowed funds.
4. Finally, the bankers argue that the new regulatory system does not possess a real ability to fix the problems related to customer protection and as such avoid the potential emergence of other financial crises, but that it only "adds a new layer of regulation without fixing . . . our outdated, broken regulatory structure that was a contributing factor in our crisis" (Hall)
The concerns forwarded by commercial banks and mortgage lenders are generally founded on solid arguments, but then, so are the arguments in favor of the formation of the Consumer Financial Protection Agency. It is as such clear that the future will bring about an intense dispute over the CFPA. An interesting element however revolves around the power held by banks and mortgage institutions, as most of these remain dependent on state funds. For instance, they use the money collected by the state through taxes to offer loans, and they also request guarantees from the United States when granting loans to its citizens (Andrews). It will be interesting to see if this feature stifles the battling power of the financial institutions and what role will it generally play in the decision relative to the Consumer Financial Protection Agency.
Aside the concerns forwarded by banking institutions, there are other elements which may worry the public. For once, there is the administrative side of the CFPA. In his speech, Treasury Secretary Timothy Geithner announced that the CFPA would speed up the process of consumer protection and increase its efficiency through a decrease in bureaucracy. Nevertheless, the implementation of the CFPA raises a lot of bureaucracy. For instance, only a limited numbers of the plans included can be rapidly implemented through the executive power of the presidential administration. The rest of them require the approval of the United States Congress. At the earliest, this approval will be granted at the end of this year, meaning that the regulations in the CFPA will be enforceable starting with 2010. Therefore, the speed and efficiency of the process remain yet to be truly seen. Additionally, there is a political concern relative to the growing problems of the American healthcare system and the growing energy insufficiency. Even some members of the presidential administration feel that these needs are more impending than the financial protection of customers (Allen and Javers, 2009).
6. How Best to Advise Citigroup to go about Exerting Influence to Prevent the Passage of this Bill
Similar to JP Morgan and Wells Fargo, financial giant Citigroup is also one of the opponents of the Consumer Financial Protection Agency. In answering the challenges posed by the potential introduction of the bill, it is necessary that the managerial team at Citigroup takes a gradual, objective and clearly structured approach. The steps to this approach are revealed below:
1. First, it is necessary for the managerial team at Citigroup to assign a team of specialized economists, politics experts and lawyers to research the true features and implications of the CFPA. The company cannot rely on the information offered by the media but needs to possess its own professional insight. The research report to be handed in by the appointed research specialized has to be thorough and detailed and must be presented to the board of Citigroup. It is pivotal to comprehend all implications before launching an action against the plan of the United States President. The team that has conducted the research will be continually used throughout the process due to their expertise regarding the case.
2. The next stage of the opposition process is that of communicating with the other representatives of the financial sector. In this order of ideas, the Public Relations team at Citigroup would organize individual meetings between the top executives at Citigroup and the executives of other large financial organizations, such as JP Morgan or Wells Fargo. The Citigroup representatives will engage in open communications to identify the stand of its otherwise competitors, but now potential allies. It is generally expected that most financial institutions side with Citigroup.
3. With the completion of the individual meetings, a general meeting will be held and it will include all top executives of the financial institutions. The outcome of this gathering will be the signing of a document contesting the formation of the Consumer Financial Protection Agency. The document will be objective, highly documented and will include all fears of bankers related to the new act; it will follow all procedures and it will be sent to the United States Senate as well as the United States Presidential Administration.
4. Considering that the previously mentioned course of action has not retrieved the desired outcome, the next step is that of making use of the company's connection with the lawmakers. This business procedure is seldom discussed in open conversations, being generally considered a taboo subject in business communications. Nevertheless, it is a common fact that Citigroup, as well as most other corporations, have, along the years, financially sustained candidates to political functions. Some of these former candidates are now in high positions and have the ability to influence the lawmaking process. Given this situation, Citigroup is advised to look over its sponsorship documents and identify which current politicians have been supported by the company. It should then identify the current positions of those politicians and their ability to influence the lawmaking process. They must then approach these politicians and present their case against the CFPA, requesting their support.
5. Finally, the last stage of the campaign against the Consumer Financial Protection Agency would revolve around the communications with the public. The general perception is that the CFPA will be implemented as it is in the best interest of the public and because the public desires its adoption. This very same public however can constitute a major reason against the decision to create the CFPA. In this order of ideas, the managers at Citigroup could order the creation and airing of a media campaign to convince the public of the negative impacts of the consumer protection agency. It is however advisable for the campaign to not only be aired under the aegis of Citigroup, as such an endeavor would be publicly perceived as an individual effort to safeguard organizational revenues, but it is advisable for it to promote the united stand of the entire banking sector. The media campaign should focus on the negative impacts of increased regulation, with generally reduced access to funds and more expensive credits as the main forces which influence customer decisions.
Allen, M., Javers, E., Barack Obama to Create Consumer Financial Protection Agency, Politico, 16 June 2009, http://www.politico.com/news/stories/0609/23790.html last accessed on September 30, 2009
Andrews, E.L., Banks Balk at Agency Meant to Aid Consumers, New…