New Consumer Agency Weakened And May Not Survive Congress
In the face of the economic collapse and the role financial companies played, President Barack Obama recently called for the formation of a robust agency which had the power to police the fine print in mortgages, credit cards and other similar financial services ranging from auto financing to payday loans.
The plans for a new financial control agency was introduced by Barack Obama after the creation of the Credit CARD Act, a landmark set of legislations aimed at protecting consumers from credit card company practices. Apparently, the president saw that the Credit CARD Act alone would not suffice in curtailing the runaway practices of financial institutions which contributed greatly to the economic collapse.
With the new agency, Obama planned to encourage financial institutions to introduce standardized, no frills mortgages. These home loans would serve as a base from which consumers could compare more elaborate mortgage offers from financial institutions. The president also wanted to create a clearer line of communication between consumers and financial companies. He also planned for the agency to be able to examine bank books, similar to already established financial regulators, so as to keep an eye out of how safe and sound the entries are.
From the outset, banks have always been completely against the creation of the new agency. They argue that the current government financial regulators are already well established and are up to the task. Their opposition against the new agency is best exemplified by the $2 million ad campaign that the U.S. Chamber of Commerce launched against the new agency.
A key issue that the president and administration officials have constantly been high lighting as a key protection for consumers is the ability of the new agency to review financial institutions. However, this particular issue has proven to be very difficult to swallow, even for Democrats who make up a majority of the legislation’s supporters. Ultimately, it was not even the major financial companies that bent the issue but lawmakers who were influenced by their own particular business leaders such as auto dealers and bankers who make up their particular piece of local politics.
The result was Democrats in the committee exempting more than a thousand banks from being liable for examination by the planned consumer protection agency, although they are still required to comply with the agency’s rules. The general argument is that small community financial institutions would get overburdened by regulators if they were made to be liable to the protection agency. In any case, these small community financial institutions were not the cause of the current financial crisis anyway.
These exemptions have not helped the case of the new agency at all. As Democrat Emanuel Cleaver from Missouri put it, “In the end, we have weakened legislation that the opposition is not going to support”.
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