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Obama asks creation of agency for consumer financial protection
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Published: July 1, 2009
WASHINGTON
President Barack Obama asked Congress yesterday to create a new agency to police the fine print on credit-card bills and mortgage documents and determine what fees, penalties and interest rates are fair.
The Consumer Financial Protection Agency would be in charge of regulating credit cards, savings accounts and mortgages in the same way that other government agencies regulate the safety of drugs, food and toys.
Obama said that Americans are demanding it.
"Those ridiculous contracts with pages of fine print that no one can figure out -- those things will be a thing of the past," Obama said in a statement accompanying the 152-page draft bill. "And enforcement will be the rule, not the exception."
Republicans and bankers, however, already are gearing up for a fight.
Part of the agency's mission would be to put in place new restrictions on credit-card companies passed by Congress this spring. That law prohibited arbitrary rate hikes and limited access to cards by minors.
The consumer-protection agency also would regulate high-rate "payday loans" and the terms on savings, checking and debit-card accounts, including overdraft charges.
Under the plan, lenders would be required to be upfront about their products, potentially applying warning labels to such risky products as mortgage payments that balloon in the future.
The agency's creation would extend federal oversight to a market that so far has mostly escaped it. Confusing and risky mortgages are blamed for contributing to the housing crisis that roiled Wall Street and resulted in a $700 billion taxpayer bailout for banks.
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, called the proposal one of his highest priorities and said that his panel would consider it next month as part of a broader effort to overhaul federal regulations on the entire financial industry.
Sen. Christopher Dodd, who faces a tough re-election fight next year, also vowed to steer the proposal through the Senate Banking Committee he chairs despite staunch opposition from the banking industry.
"It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers," said Dodd, D-Conn.
Republicans and financial executives counter that setting strict rules on the consumer market will limit options for buyers and potentially increase the cost of financial products as banks try to make up for lost revenue.
Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, said that the bill could give consumers a false sense of security when it comes to selecting financial products.
"The proposed CFPA appears to be premised on the idea that Washington is better at making financial decisions for all Americans than leaving that choice up to individual Americans," he said.
Steve Bartlett, the president of the Financial Services Roundtable, said that the new agency would end up raising the costs of financial products, reduce consumer choices and "stifle innovation and increase confusion" on the part of consumers.
Proponents of the agency say that its creation doesn't have to mean fewer products on the market.
Elizabeth Warren, a Harvard University professor who long has advocated creation of a consumer-protection agency, said she envisions a system that would allow products to remain available as long as lenders are upfront and concise about their terms.
Warren said she thinks that most consumers would have stayed away from many of the risky mortgages that contributed to the housing crisis had they understood them better.
"Most of the bad products were marketed by trickery," she said.
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