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Monday, November 2nd, 2009

Consumer Financial Protection Agency Moves Forward in House

Last week, the House of Representatives Financial Services Committee voted 39-29 for the creation of a federal agency that would provide consumer protection. The proposed agency (called in bills the Consumer Financial Protection Agency) has been in the news since its proposal earlier this year.

This vote is seen as an important step, but the bill must still face votes before the full House of Representatives and the Senate.

Who Wants It, Who Does Not

For the past few months, lobbyists from both sides of the debate have been pushing legislators to make a decision about the potential consumer protection group.

  • A Yea from consumer advocates: Generally speaking, supporters of consumer rights favor the agency's creation. If approved, the agency would regulate certain financial products like mortgages, credit cards and loans, and would provide oversight rules for some banks and lenders.
  • A Nay from big business: Supporters of large businesses and big financial firms oppose the agency, claiming that it would introduce too much government regulation into the business sector, thus hampering trade and profitability.

What The Agency Would and Wouldn't Do

Though many democrats and consumer advocates have reportedly lauded the Financial Services Committee's initial vote, the bill has apparently changed significantly since its introduction by the Obama administration.

Here's a look at what the House has outlined so far for the potential agency:

  • Limited regulatory reach: While the CFPA would be able to regulate certain lenders and issuers of financial products, the Financial Services Committee's version of the bill exempts many groups, such as lawyers, car dealers, cable companies, retailers, accountants and real estate brokers.
  • No state overrides: Though the original version of the bill would have allowed stricter state regulations to trump the national rules, this version does not.
  • Most banks can keep current regulators: Perhaps the most significant change to the bill from its earlier version was one that would allow the vast majority of American banks (about 98 percent, sources estimate) to keep their current regulators for overseeing enforcement of consumer protection laws.

Baby Steps Forward

Though passage of a House committee is only the first step in what may be a long journey, the forward motion of the bill can be viewed as a positive sign for American consumers.

While it's unfortunate that a massive collapse of the real estate industry and stock market was required to incite lawmakers to bolster consumer protections, it's good that they're taking action now.

Additional Resources

H.R.3126 (PDF)

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Posted in Financial Literacy | 10 Comments »

Friday, June 19th, 2009

Defending the ‘Little Guy’ ~ Obama Proposing New Consumer Protection Agency

This could be good news for consumers: President Obama is reportedly poised to proposed a new group to improve consumer protection in the United States.

The group, called the Consumer Financial Protection Agency (CFPA), could provide an exciting variety of regulations and protections for Americans.

The agency is reportedly going to be based on legislation introduced by Senator Dick Durbin (D, Ill) and backed by Senators Ted Kennedy (D, Mass) and Chuck Schumer (D, NY).

Consumer Protection with Teeth

Various news outlets have been emphasizing the idea that this consumer protection agency (unlike other consumer protection agencies?) would “have teeth,” presumably meaning significant power.

The realm of the CFPA would likely include the following.

  • Enforcing protection from deceptive practices. Although the term “predatory lending” hasn’t been used, the agency would ensure that consumers could access clear, concise information about the financial products offered to them and that agencies refrained from using deceitful marketing.
  • Enforcing fuller disclosure about financial products. Theoretically, requiring companies to be upfront about fees, penalties, costs and risks would better equip consumers to make smart financial decisions.
  • Discouraging exotic financial products. The agency would add hurdles to the process of signing agreements for complex products like subprime mortgages and complex credit cards for consumers whose needs would be served by more standard products.
  • Removing the risk factors for another mortgage crisis. This could involve implementing significant structural changes to the mortgage lending industry so that excessively risky loans would no longer make financial sense.
  • Toughening requirements for lenders. To discourage excessive leveraging by lenders, the agency could require lenders to hang on to at least five percent of their loans instead of selling them in full to investors. This would, in theory, encourage lenders to make less risky loans.
  • Overseeing the Community Reinvestment Act. The agency would also be involved in checking in on the progress of the CRA, which encourages financial institutions to lend to financially disadvantaged communities.

Support and Opposition

Unsurprisingly, many business organizations have expressed concern about the CFPA, suggesting that the proposed regulations could hinder their ability to make profits.

In fact, the CFPA would do just that – specifically, hinder businesses from making profits by using deceitful and/or dishonest tactics.

Lawmakers and consumer advocates from all over the political spectrum, though, have shown support for the agency and its proposed powers.

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