The Obama administration last week unveiled its a proposal for sweeping regulatory reform of financial products aimed at consumers, including student loans. The administration proposes to consolidate oversight of financial products - which would also include mortgages, car loans and credit cards - under one new agency.
The new Consumer Financial Protection Agency would have authority to write and enforce rules across a slew of financial products.
According to the white paper Financial Regulatory Reform: A New Foundation issued by the Dept. of Treasury, firms would be given the option of offering "plain vanilla" products -- such as a credit card without hidden fees or penalty interest rates -- and could market these free of regulatory hurdles. The goal is to make it possible for consumers to shop around without worrying about getting burned by the fine print. The report calls for:
- Protection for consumers across the
financial sector from unfair, deceptive, and abusive practices.
- Stronger regulations to improve the transparency, fairness, and appropriateness of
consumer and investor products and services.
- A level playing field and higher standards for providers of consumer financial
products and services, whether or not they are part of a bank
Critics argue that the new agency would stifle financial product innovation, boost the cost of regulatory compliance and cause prices for consumers to rise.
"It's going to create exactly the type of duplication, second-guessing and layering that we feared," David Hirschman, president of the U.S. Chamber of Commerce's Center for Capital Markets, said earlier this week.
Obama said the proposed agency was badly needed to help consumers make sense of complex financial instruments and to keep loan companies honest.
"Today, folks signing up for a mortgage, student loan, or credit card face a bewildering array of incomprehensible options. Companies compete not by offering better products, but more complicated ones -- with more fine print and hidden terms," Obama said.
"The American people sent me to Washington to stand up for their interests. And while I'm not spoiling for a fight, I'm ready for one."
Resources
Obama's Financial Regulation Reform: 7 Things You Need to Know (U.S.News and World Report)
Posted 06/22/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
