More Watchdogs Are Danger to Economy

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit cards.

President Barack Obama has come out strongly in favor of overhauling the financial system. Last week he introduced plans for yet another regulatory watchdog, known as the Consumer Financial Protection Agency. The agency will be set up to monitor the marketing of mortgages, credit cards and other loan products. Obama's proposal is a response to the dangerous and deceptive practices brought to light in those industries.

To be clear, there is no doubt there were deceptive practices in the lending industry. The mortgage industry was allowed to operate fraudulently, in that thousands of mortgage agents misrepresented the financial history that borrowers put on applications to get loans for which they otherwise would not have been approved. The excesses of the credit card industry have been blatant enough to require the federal government to step in and protect consumers. These industries have been allowed to ride roughshod over consumer rights without anyone stepping up for the little guy.

However, there were, and are, numerous agencies that should have protected the consumer and whose job it has been to do so. In the case of mortgages, the FBI could have rounded up mortgage brokers on charges of fraud, but they didn't. In the case of the credit card companies, like Bank of America(BAC Quote), Citigroup(C Quote), Discovery(DFS Quote) and JPMorgan Chase(JPM Quote), the Federal Reserve could have stepped in, but only decided to act in December with a new set of regulations for credit card companies that will take effect on July 2010, and for the most part will mirror the recent changes in credit card laws. These are just two of the numerous agencies that knew the system was broken, and whose responsibility it was to fix it. The fact that the Fed came up with new credit card regulations in December means it was in its power to do so all along. The Fed just, plainly and simply, sat on its hands until the financial crisis forced it into action....