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Madigan wants Congress to create agency dedicated to protecting consumers in finance dealings


by Mari Fagel
Oct 14, 2009

Creation of a consolidated federal agency to protect consumer financial interests faced congressional hearings Wednesday as Illinois Attorney General Lisa Madigan urged passage of the embattled measure.

The House Financial Services Committee is debating the creation of an independent Consumer Financial Protection Agency, which would set and enforce national rules for the financial services industry.

“This agency will give voice to millions of average American consumers whose interests have for far too long taken a backseat to those of the big banks,” Madigan said in a Thompson Center press conference.

Consumer protection power is currently spread across a range of agencies. If passed, the agency would consolidate oversight of all financial lenders.

“The need for such an agency has never been more apparent,” Madigan said.

In 2008, the Illinois attorney general’s office saw a 28% increase in complaints related to consumer debt from the year before, Madigan said. The office also received more than 17,000 calls from residents facing foreclosure since the creation of the state’s foreclosure helpline last February.

The state office has tried to combat abusive lending practices against fraudulent lenders. Madigan has sued AmeriQuest Mortgage and Wells Fargo. Last year, she led an $8.7 billion settlement against the former Countrywide Financial, which was the nation’s largest mortgage lender. However, Madigan says, gaps in federal regulation have enabled banks and lenders to escape state prosecution:

“In the past, we have opened investigations of state licensed lenders, and those lenders have switched their charters to become federal institutions, a move which limits our ability to enforce our own state laws against them.”

If passed, the amendment would close that loophole by giving state regulators the authority to enforce their own consumer protection laws against federally chartered institutions.

“Permitting states to address problems that arise within its’ own borders is particularly valuable to protecting the consumer,” said William McNary, executive director of Citizen Action Illinois. “States are often more nimble at responding to problems when they arise.”

However, the American Banking Association said federal financial institutions should not be subject to state laws. In a letter to U.S. Rep. Barney Frank, (D-Mass), chairman of the financial services committee, the association said, “Banks and the consumers that banks serve will be subject to a patchwork of often-conflicting state laws that will confuse consumers, greatly increase the cost of financial services, and serve as a strong disincentive to the creation of new products of value.”

Madigan sent letters Wednesday urging passage of the agency to all Illinois members of the House Financial Services Committee.