Consumer agency might police American's credit

WASHINGTON — President Barack Obama asked Congress on Tuesday to create an agency to police the fine print on consumer products, such as credit cards and mortgages, and determine what fees, penalties and interest rates are fair.

The Consumer Financial Protection Agency would be in charge of regulating those products in the same way other government agencies regulate the safety of drugs, food and toys.

Obama said 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,” the president said in a statement accompanying the 152-page draft bill. "And enforcement will be the rule, not the exception.”

The CFPA is part of Obama’s broader plan to increase oversight of the financial industry and eliminate regulatory gaps believed to have contributed to the economic crisis.

The agency would be dedicated to protecting consumers when buying mortgages, using credit cards and taking out high-rate "payday loans.” It also would monitor terms set on savings, checking and debit card accounts, including overdraft charges.


Warning labels?
Under the plan, lenders would be required to be up front about their products and compare them to less risky, "plain vanilla” options. The agency potentially could require a kind of warning label on such financial products as mortgages with payments that balloon in size.
The agency’s reach would not extend to investment products such as mutual funds and other services already regulated by the federal government. Instead, it would focus on regulating a market that so far mostly has escaped it. Predatory lending is blamed for contributing to the housing crisis that roiled Wall Street and resulted in a $700 billion taxpayer bailout for banks.


Limiting options?
Republicans say setting strict rules on the consumer market will limit options and potentially increase the cost of financial products as banks try to make up for lost revenue.
"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,” said Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee.

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 up front and concise about their terms.

"Most of the bad products were marketed by trickery,” she said.

Likewise, Treasury Department officials said legislation explicitly requires the CFPA to consider the burden any new rule would place on a financial institution and whether it would restrict consumer access to credit.


by the associated press