Obama Proposes Consumer Finance Agency Bill

The Obama administration has sent legislation to Capitol Hill to create a new Consumer Financial Protection Agency.

The agency is part of the president’s recently unveiled plan to overhaul the financial regulatory system (see Obama Plan for Regulatory Reform Includes Accounting Convergence). The new agency will be dedicated to protecting consumers when they take out loans or sign up for other financial products and services, such as credit cards. The new agency will enforce the recently approved Credit Cardholder Bill of Rights Act, as well as combat abuses in the mortgage market. The CFPA will also take responsibility for enforcing the ban on unfair credit card rate increases and implementing the new rules preventing late fee traps.

“This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want — and actually understand,” said Obama in a statement. “Consumers will be provided information that is simple, transparent and accurate. You’ll be able to compare products and see what’s best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out — those things will be a thing of the past. And enforcement will be the rule, not the exception.”

The agency will be required to monitor the market continuously for risks to consumers, and publish significant findings at least once yearly. The new agency will also have broad authority to protect consumers of credit, savings, payment and other consumer financial products and services, and to regulate all providers of such products and services, including both banks and non-banks. It will have the ability to gather information in any part of the market, from any kind of entity making the loan or providing the product or service, to respond to changes and address bad practices as they develop.

The agency will be accountable for writing rules and implementing existing statutes for consumer protection, and for creating consistent rules for unregulated and lightly regulated institutions, supervising and examining institutions to ensure compliance, and enforcing compliance through orders and penalties.

The agency is also intended to address some of the root causes of the mortgage crisis by having the ability to oversee all types of home mortgage lenders. It will have the authority to create guidelines for standard “plain vanilla” mortgages, require mortgage brokers to owe a “duty of best execution” among available mortgage loans to avoid conflicts of interest, and be able to ban unfair practices such as side payments from lenders that encourage mortgage brokers to push consumers into higher-priced loans.