Dodd Introduces Bill To Remove Credit Card Oversight Powers From Fed
Senate Banking Committee head Senator Christopher Dodd recently introduced a new set of legislation that would create an independent consumer protection agency which would watch over financial products such as credit cards and mortgages.
The bill proposes to strip the primary financial regulator powers of the Federal Reserve. It would also remove the Federal Reserve and the Federal Deposit insurance Corporation’s bank supervising responsibilities. Instead, the Senate bill would create an independent Consumer Financial Protection Agency whose only goal would be the protection of consumers from deceptive and fraudulent practices in the financial sector. This new agency would also ensure that full disclosure about financial products such as credit cards, mortgages and other loans are readily available to consumers.
The Senate bill addresses the current problems resulting from the fact that the responsibility for regulatory oversight is spread across several agencies. This situation has resulted in difficulties figuring out which agency should be responsible for what particular problem. The problem is particularly prevalent when there are new issues that arise, one which no regulatory agency has yet handled.
During the accompanying press release of the proposal, Senator Dodd commented that the credit crisis and the economic downturn that resulted from it was driven by the failure to protect consumers across the board. He also stated that the new bill would restore the confidence of Americans in their regulatory system. The Senator has taken direct aim at the Federal reserve, noting that it has “repeatedly failed to act despite repeated demands from Congress”.
“When consumer protections are handled by regulators whose primary responsibility is to safeguard the profitability of the companies they regulate, consumer protections don’t get the attention they need. The result has been unfair, deceptive, and abusive practices being allowed to spread unchallenged, nearly bringing down the entire financial system.”, the Senator noted.
The proposed Consumer Financial Protection Agency of the bill would consolidate the consumer protection responsibilities that are now being handled by a number of regulatory agencies into a single independent commission which would be led by a 5-member board. The writing of rules, supervision and the enforcement of consumer protections would be centralized and the new agency would have expansive powers to investigate and pursue abuses in the financial sector. The agency would also be proactive and would be able to deal with issues without waiting for the passage of new consumer protection from Congress.
A new Office of Financial Literacy would also be created by the bill. It also aims to tighten the oversight of credit rating agencies, hedge funds, executive pay, mortgage-backed securities and over-the-counter derivatives. It would also introduce new regulations for shadow banking industries such as payday lenders and mortgage brokers.
