Proof the Fed Does Not Protect Consumer Rights

      I was dumb founded as I read this editorial in The New York Times of November 29th and so I am quoting the basic points below.

     You may remember when the movement to create a separate Consumer Protection Agency gathered force last spring.  Mr Bernanke was one of its fiercest opponents. I remember one droning disposition before the Congressional Banking Committee when he explained actions the Fed took in protecting the credit card consumer.  He talked about the size of the font and the length of the sentences and the clarity of the prose in bank disclosures.  Not a word about limits on fees, timely notice of raises in interest rates, collusion with other creditors in setting interest rates. Mr Bernanke was mostly worried about educating the consumer! Nothing about reforming banking practices.

      Congress did mandate more comprehensive changes to credit card regulations, in great part due to the efforts of Elizabeth Warren, and the Banking Reform Act did create a separate Consumer Protection Agency within Treasury, outside the purview of the Fed. This new proposal should remove any lingering doubts anyone ever had about the wisdom of taking consumer protections away from the FED.  Read and weep.

      "There are two sides to every delinquent loan - a lender who made a bad lending decision and a borrower who cannot repay. Yet, banks have never acted as if they bear responsibility for the mortgage mess.

They have . . .. resisted reducing principal balances for troubled borrowers, for instance, because that could force them to take losses they would rather delay.

Now, despite mounting evidence of borrower mistreatment, the Federal Reserve has proposed a rule that would disable the most effective legal tool that borrowers have to fight foreclosures.

First, some background: The Truth in Lending Act from 1968 gives borrowers the "right of rescission," the ability to undo a home refinancing or home equity loan within three years of the closing if the lender did not make proper disclosures - generally of the loan amount, interest rate and repayment terms. The law makes allowances for mere mistakes by the lender, but otherwise requires strict compliance, as well it should: disclosure is the main - often the only - consumer protection in the mortgage market. ... .  when a loan is rescinded, the lender must give up its security interest in the home - and without a security interest, the lender cannot foreclose. The borrower must still repay the loan principal, minus payments already made. Essentially, a lender that has not complied with required disclosures can get its money back, but not interest and other fees.

      In practice, one of the ways that rescissions have worked is that lenders faced with rescission have instead modified the loans, by reducing principal and setting new repayment terms. The Fed. . .  would require a borrower to pay off the remaining principal before the lender gives up its security interest. That would be clearly impossible for troubled borrowers. So the Fed's proposal would benefit the creditor who violated the law rather than the borrower, paving the way for foreclosures that otherwise could be avoided."

      Banks have already influenced our bankruptcy laws such that the one type of debt that cannot be extinguished or altered by a bankruptcy judge - you guessed it - is a mortgage! Now they want relief from responsibility for false representations!  Go talk to your senator about this. I have.