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Academic

: Less than the Least

Consumer Financial Protection Agency--Skeel

By David Skeel and Bill Stuntz

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The most surprising of Obama administration's new financial reform proposals would establish a new Consumer Financial Protection Agency to look after consumers' interests in financial services contracts such as credit cards and mortgages. It's been discussed in Washington for many months, but it was not part of the earlier version of the reforms announced by Treasury Secretary Geithner in the spring. This new agency would have the power to write rules for credit card contracts and other transactions, examine financial institutions, and require firms to offer a 'plain vanilla' mortgage product as a yardstick for comparing their more exotic mortages.

The agency's proposed powers are astonishingly broad. I strongly suspect that this is a first negotiating move, rather than an expectation of powers the agency will actually have when the legislation is passed. The financial services industry rightly fears that the agency is a major threat to their profits, and is already digging in its heels to fight vigorously. I suspect the final result will be a compromise, at least if the Obama administration's reluctance to take on banks directly in the past is any indication.

One of the most interesting questions—and a key to the likely efficacy of the agency—is who will be appointed its head. The principal proponent of the agency is Bill's colleague Elizabeth Warren, who currently leads the TARP oversight panel, and she is an obvious choice to head it up. But Warren has locked horns with credit card banks for years over bankruptcy reform, and I suspect they will fiercely oppose her nomination.

I have sometimes with Warren over bankruptcy and credit issues in the past, but I personally think the agency is a good idea. Currently, consumers are protected by bank regulators. But bank regulators have more of a stake in bank health (and profits), than in consumer interests. Consumers could use a champion.

Full post as published by Less than the Least on June 18, 2009 (boomark / email).