I’ve been a little upset at the organized, well-funded campaign of “disinformation” and obstruction taking place in the Nation’s capital to put the kabosh on any truly effective consumer protection in the banking and financial services industry ( I began my career in banking and after that provided consulting services to over 130 banks and savings banks). Not long ago I sent this letter to Sen. Christopher Dodd, Chairman of the Senate Banking Committee, whose consumer protection efforts I’ve supported in the past.

Now I’m making this letter public to further press these key points. When you read the letter, please let me know what you think and I’ll be pass them along where it will do some good.

Dear Senator Dodd,

I appreciated your letter of October 2 regarding my prescription for “untying the Gordian Knot” and restoring stability in the U.S. housing markets. I have been closely following your efforts with both the Health Care reforms and Financial Services reform bills and have enjoyed our work together in the past, particularly on passage of your PMI reform bill and in support of the AHA’s National Smoke Alarm Awareness project conducted with the City of Bridgeport and its fire department. I greatly admire your motivation and efforts to craft effective legislation in each case that achieves the desired goals and outcomes on behalf of consumers without adding excessive burdens that inhibit private enterprise.

There are several thoughts I’d like to share with you that could have impact as you work to finalize these bills in committee, and deal with the various controversies that will arise.

The first is that there needs to be a clearly stated mandate and set of principles for each bill that assures that those in government who are to serve as watchdogs in enforcing the provisions of these laws understand their duty on a basis that resists the influence of politics. Clearly the SEC failures in the last decade must not be repeated. Take politics out of fiscal soundness regulation. What’s needed is a watchdog, not a regulator. The job of the watchdog is to give pushback (or always be a threat of pushback), to level the playing field, to publicize wrongdoing, and to deter others in the industry from following down the same path.

Second, there always needs to be a system of checks and balances put in place to assure that accurate information is being produced and reported, and that the law is being carried out.

Third, transparency must be created via a process of auditing which assures that fiscal integrity and soundness are maintained.

Fourth, capital adequacy must be enforced relative to the risks being incurred and the type of stakeholders (account holders or policy holders or investors) at risk—the various standards for capital adequacy articulated, measurable, measured, and enforced.

Fifth, there needs to be a clear distinction restored between risk capital and safety capital as applied to investment or merchant banking, versus deposit taking and lending. Take risks with your own private risk capital as much as you wish, so long as you are not jeopardizing the safety of others who are not voluntarily at risk. But neither the taxpayers nor the safety return stakeholders should be put at risk. Thus the question of “too big to fail” becomes a vital issue requiring timely attention.

Let’s encourage risk taking so long as the risk is being taken by those who have the capital to risk and stand to be rewarded, but not by taxpayers or depositors.

Sixth, fundamentally, the banks should be chartered to serve the public, while making a decent return, not to rip off the public with exorbitant and unavoidable fees so they can make risky investments suited to investment banks, private equity and hedge funds and risk capital. As a lifelong financial services industry professional, and sometime industry gadfly, I believe I have gained a bit of insight and expertise into how an effective consumer watchdog agency could perform these functions. I welcome any opportunity, assistance or input I can provide which would help you achieve these goals.

Seventh, a consumer financial services agency must have teeth. It must be primarily a watchdog, more than a prescriber of rules, but it should not hesitate to prescribe, initiate, or clarify rules when there is a clear pattern of abuses taking place against the public’s interest. Some time ago, I testified before Chairman Henry Gonzalez’s House Banking Committee and helped to re-write the legislation, which corrected mortgage escrow overcharge abuses, resulting in refunds made by servicers of more than $5 billion to homeowners with mortgages. To this day those particular abuses have not raised their ugly heads again.

There is no doubting that a vibrant financial services industry is necessary for a healthy and growing consumer economy. Monopoly power is always desired by companies and moguls. It’s the job of our government to absolutely assure that they don’t receive it, whether explicitly or implicitly.

Impulse buying and undisciplined financial behavior unfortunately affect the majority of financial consumers. Building savings and financial security is a slow, unexciting, incremental journey of consistency. Most households in this era have had too many destabilizing events to maintain that consistency for long. Combined, the recent spate of abusive practices, the present financial climate, excessive hidden or involuntary fees and costs, and excessive dependence on household debt loads have threatened to return the bulk of the U.S. middle class to the condition of serfs under feudalism. This was not the vision that was established and fought for by the Founding Fathers.

If a National Health Care Policy is to be passed into law, it should include both incentives and disincentives to achieve reform of our national health practices. A carrot and stick approach, to both health care providers, and consumers, should produce checks and balances. For example, there should be penalties applied for obesity and smoking, as both are well-documented to result in degenerative diseases, excessive medical care needs and costs, and premature death.

Basic nutritional education should be required in elementary school, along with basic personal and household financial education. There is no point for elementary school children to be able to name every type of leaf and every type of fish, and not know how to live a solvent life.

You and I have each had the delight and good fortune to have our children after age 50. I have two daughters in grade school (my twins, Allison and Rebecca, are in second grade at the Mill Hill public elementary school in Southport, CT).

Let’s leave this place better than we found it. I know that is your desire, and you know it is mine. Congratulations on your purposefulness, your diligence and your hard work on behalf of our state and our nation’s future.

Warm personal regards,

Richard J. Roll

Founder and President

RJR:nm

Filed under: Banking and Financial Services • Senator Christopher Dodd

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