Bankruptcy

Defending the ?Little Guy? ~ Obama Proposing New Consumer Protection Agency

By meaghano

This could be good news for consumers: President Obama is reportedly poised to proposed a new group to improve consumer protection in the United States. The group, called the Consumer Financial Protection Agency (CFPA), could provide an exciting variety of regulations and protections for Americans.

The agency is reportedly going to be based on legislation introduced by Senator Dick Durbin (D, Ill) and backed by Senators Ted Kennedy (D, Mass) and Chuck Schumer (D, NY).

Consumer Protection with Teeth

Various news outlets have been emphasizing the idea that this consumer protection agency (unlike other consumer protection agencies?) would ?have teeth,? presumably meaning significant power.

The realm of the CFPA would likely include the following.

• Enforcing protection from deceptive practices. Although the term ?predatory lending? hasn?t been used, the agency would ensure that consumers could access clear, concise information about the financial products offered to them and that agencies refrained from using deceitful marketing.
• Enforcing fuller disclosure about financial products. Theoretically, requiring companies to be upfront about fees, penalties, costs and risks would better equip consumers to make smart financial decisions.
• Discouraging exotic financial products. The agency would add hurdles to the process of signing agreements for complex products like subprime mortgages and complex credit cards for consumers whose needs would be served by more standard products.
• Removing the risk factors for another mortgage crisis. This could involve implementing significant structural changes to the mortgage lending industry so that excessively risky loans would no longer make financial sense.
• Toughening requirements for lenders. To discourage excessive leveraging by lenders, the agency could require lenders to hang on to at least five percent of their loans instead of selling them in full to investors. This would, in theory, encourage lenders to make less risky loans.
• Overseeing the Community Reinvestment Act. The agency would also be involved in checking in on the progress of the CRA, which encourages financial institutions to lend to financially disadvantaged communities.

Support and Opposition

Unsurprisingly, many business organizations have expressed concern about the CFPA, suggesting that the proposed regulations could hinder their ability to make profits.

In fact, the CFPA would do just that ? specifically, hinder businesses from making profits by using deceitful and/or dishonest tactics.

Lawmakers and consumer advocates from all over the political spectrum, though, have shown support for the agency and its proposed powers.

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Full post as published by The Bankruptcy Blog on June 19, 2009 (boomark / email).