Consumer Financial Protection

April is Financial Literacy Month. The current recession was caused by a combination of factors that include (a) the financial ignorance of the average citizen, (b) the lack of oversight by government regulators, and (c) the greed of financial institutions to gamble with the consumers' money and investments for their own corporate and personal benefit.

Our current financial system is based on consumers and businesses borrowing money from banks and credit card companies. When this debt is used to invest in improvements in our productive capacity and infrastructure, it is monetized and enables the borrower to pay back the debt with interest, and everyone in the economy benefits with rising incomes, investments, and jobs—economic growth.

This system has been humming along, more or less, for quite a while now, but recently it ran into a major problem—greed.

At some point, those in the banking and finance business decided that taking deposits and making loans just were not profitable enough, and they started getting creative. All sorts of new financial strategies were created to allow profits and bonuses to be at higher rates than is traditional for the industry. So, new moneymaking wonders such as leveraged buyouts, high-risk mortgage loans, credit default swaps, and derivatives were born. Consumers played their part by overextending their ability to pay back their loans and credit card debt.

Ultimately, this resulted in major companies becoming insolvent with revenue streams that were falling and debt payments that were not. Many of the big players, in collusion with the Federal Reserve, government regulatory agencies, and credit-ratings bureaus, have colluded to hide the huge loads of junk assets and bad debts still on the books. The most egregious part of it all is that these companies convinced the government that taxpayers should bail out these companies.

Now Congress, attempting to end these financial practices, is developing legislation that would establish the Consumer Financial Protection Bureau as an independent entity housed within the Federal Reserve. The Bureau would have the authority to write consumer protection rules for banks and nonbank financial firms offering consumer financial services or products.

The Bureau also would have authority to examine and enforce regulations for banks and credit unions with greater than $10 billion in assets, all mortgage-related businesses (such as lenders, servicers, and mortgage brokers), and large non-bank financial companies (such as large payday lenders, debt collectors, and consumer reporting agencies).

How much government regulation is necessary to protect consumers? How much responsibility for reform should fall on more enlightened consumers? Assign students to write a report of at least 150 words that cites at least three resources and addresses the essential question for the SIRS Leading Issue: "Mortgage and Lending Issues"—Will more regulation stop predatory lending practices? (See the pathfinder below to access this issue).

Students should select either a Pro or Con position for their reports.

ProQuest provides four unique models to promote differentiated instruction.

Click the "Research Guides" link in the tool bar located inside the issue after opening it to see the choices:

• Writing a Research Paper
• Writing a Mini-Research Paper (student and teacher management versions)
• Creating a PowerPoint Presentation
• Creating a Mini-Debate (student and teacher management versions)

SIRS Issues Researcher > Visual Browse > Click "Economics, Business, and Law" > "Global Financial Crisis" > "Mortgage and Lending Issues"

Make students aware of the 21st Century research tool—Notes Organizer (see icon next to Research Guides) that is available in this and all issues after opening them. This unique tool helps students to organize their thoughts along with the information that they access on this issue.