In response to my recent blog post, “Modified Plans for the Consumer Agency Still Doomed to Fail,” I received an email from Reuters blogger Felix Salmon that questioned the idea that consumer protection and prudential protection can coexist.  In layman’s terms, Felix’s challenge was that what’s bad for the card issuer is inherently good for the consumer and vice versa.  Given that this is a question that many people likely have, my response to Felix follows:

It’s important to remember that one of the best ways to protect consumers is to prevent them from securing loans that they clearly cannot afford (i.e. “toxic loans).  As you very well know, when someone gets a loan that is significantly higher than what they can afford, they get into all kinds of trouble, including being forced into bankruptcy and/or foreclosure.  As it stands now, prudential protection and consumer protection are combined, and there are various regulatory agencies that have the knowledge, experience and authority to prevent toxic products to the market. Unfortunately they’ve been asleep at the wheel. Under the CFPA prudential protection and consumer protection will be split.  This means that the very agency responsible for protecting consumers won’t have the required data or experience, not to mention the authority, to protect consumers against toxic products.