Friday, congressional negotiators announced a financial reform bill agreement. It will be voted on by the House and Senate next week. The financial reform bill changes most of the rules that form the relationship between financial institutions and consumers. Some feel consumers will win big with the bill. Other people think the bill is just a shaft.
A new consumer protection agency
The financial reform bill gives consumers a new agency to watch for their interests. The Consumer Financial Protection Bureau will write rules about loan products to keep consumers safe. Business Week reports that Democrats defeated Republican efforts to try and scale back the powers of the proposed consumer agency. But the financial reform bill sets up a bureau with independent funding. It will be part of the Federal Reserve and has the power to write rules banning abusive practices in credit-card and mortgage lending.
Can consumers be hurt by Fiduciary standards?
A provision in the financial reform bill that requires brokers to abide by a fiduciary standard when they give investment advice has those in that industry crying foul. David Loeper of Forbes says that part of the financial reform bill will hurt the protection of consumers. He says that because the bill requires brokers to be held to a fiduciary standard enforced by the Securities and Exchange Commission, just as investment advisers are today. As reported by Loeper, that means consumers won’t be able to tell the difference between brokers and investment advisers. Apparently he thinks that being able to trust both species equally isn’t such a good thing.
Oversight is consumer agency consolidation
The financial reform bill’s Bureau of Consumer Financial Protection would consolidate oversight of a wide variety of financial products, including mortgages, credit cards and payday loans. ABC News reports that responsibility for these areas seems to be currently scattered across a variety of government agencies. Experts say that creating a single supervisor will help make financial products easier to understand and not take unfair advantage of borrowers.
The leadership of consumer protection
The consumer Financial Protection Bureau was designed by Elizabeth Warren, a Harvard Professor who is chairwoman of the congressional oversight panel for the Troubled Asset Relief Program (TARP), the $700 billion government bailout of the financial industry. Democratic Senator Sherrod Brown of Ohio told Business week that he “would love” to see Warren appointed to head the agency. There are many people who want to see Warren in charge according to Brown.
I wouldn’t try to mess with Elizabeth Warren
Warren called for regulations to limit credit-card contracts to a short, easy-to-read document, curb bank overdraft fees and make online credit scores free. In an interview with USA Today she said:
“I discovered the extent to which the business model of selling debt to middle-class families has changed over the past 20 years. The credit card companies and other lenders moved to a tricks and traps pricing model. The fees, the interest rate hikes and all the other surprises in the fine print have left families increasingly vulnerable. I watched hardworking, play-by-the-rules middle-class families collapse financially, and that led me to study the consumer credit market and eventually to the idea behind the consumer financial protection agency.”
Citations
Business Week
businessweek.com/news/2010-06-22/warren-should-head-new-consumer-agency-brown-says.html
Forbes
blogs.forbes.com/investor/2010/06/25/financial-reform-bill-will-shaft-consumers/
ABC News
abcnews.go.com/Business/article/financial-reform-bill-means-big-consumers/story?id=11012343&page=1
USA Today
usatoday.com/money/companies/regulation/2010-06-24-warren24_ST_N.htm
