Rep. Judy Biggert has made it crystal clear that she'd rather protect the interests of the banking sector than those of Illinois consumers. The Hinsdale Republican's alternative to the the creation of the Consumer Financial Product Agency (CFPA) is to keep consumer protection under the jurisdiction of the current regulatory bodies. But Rep. Luis Gutierrez thinks that's exactly the problem. Talking to Politico, the chairman of the House Committee on Financial Services says existing regulators did little to stop the lending abuses that precipitated the current economic crisis and will continue their current behavior unless a new independent agency to safeguard borrowers from harmful financial products is established:

The seven banking regulators that have consumer protection power have “fallen asleep at the wheel,” said Rep. Luis Gutierrez (D-Ill.), who chairs the financial services subcommittee with jurisdiction over the issue.

Under the status quo the banks are fighting for, “it takes the Fed 14 years to use its legislative powers to stop predatory mortgage practices that have already destroyed our economy. That’s how long it took.”

As of yesterday, Rep. Barney Frank (D-Mass.) is pushing back the mark-up of the House bill that houses the CPFA proposal. But members of his party aren't letting the issue die. Instead, they are preparing a PR campaign with a coalition of unions, civil rights groups, and consumer advocates to slam lenders for employing  lobbyists to block the legislation. They will have a lot of ammunition; not only are foreclosures up as a result of the mortgage industry's intransigence regarding bankruptcy reform, but new financial disclosures show that some of the biggest recipients of the government's $700 billion bailout actually increased their spending on influencing legislators this quarter.

In the end, their money might not be well spent. On the New York Times' Economix blog this morning, Simon Johnson makes the counter-intuitive -- but sensible -- case that it's in the best interest of the banking industry to support the bill originally penned by Sen. Dick Durbin. Why? Improving consumer protections also improves consumer confidence, which is good for banks trying to make secure loans:

Many consumers were burned, one way or another, by a financial product in recent years. They are now suspicious. They can spend time looking for vanilla alternatives from reputable companies, but, frankly, everything is to some extent tainted.

What happens when there is a scare regarding food contamination in the United States or globally? People buy less of that food until the government assures them that: 1) we now understand the cause of the problem; and 2) it will not happen again.

Word has gotten around that many financial products are not safe — as well as the idea that the debt levels encouraged by the finance industry are not always healthy. Consumers are going to be more careful and, if there is no way to reassure them fully, they may be excessively careful.

(H/T TAPPED)