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Weekly UpdatesIF THE OBAMA ADMINISTRATION HAS ITS way, your relationship with money is about to change----quite possibly for the better.
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In the largest rewrite of financial regulation since the Great Depression, the White House proposed, earlier this summer, a sweeping set of reforms aimed at restoring confidence in the nation's financial system. In the midst of economic crisis, brought on by too much risk-taking among financial professionals and consumers alike, the administration is pushing for new rules designed mainly to protect consumers, investors, and home buyers. The regulations will govern any institution that safeguards, lends, or invests your hard-earned dollars.
In general, the legislation attempts to prevent another breakdown of the nation's financial framework, though the final details at press time are still under deliberation. The administration has asked Congress to act on the reform package by the end of this year.
The proposal's main planks call for:
* Expansion of the Federal Reserve's oversight of all large, interconnected institutions whose failure could jeopardize the financial system. Those firms would be required to meet higher capital and liquidity requirements. If any firm is found to pose a risk, the Fed would be authorized to intervene.
* Development of a Financial Services Oversight Council to help fill gaps in regulation and identify emerging systemic risks. Replacing the President's Working Group in financial markets, it would be chaired by the Treasury and comprised of the heads of other financial regulatory agencies, including the newly created National Bank Supervisor.
* Comprehensive regulation of markets for derivatives, including asset-backed securities and credit default swaps. These investment vehicles (mainly those backed by mortgage loans) were largely cited as one of the leading causes of last year's implosion of the financial markets.
Of course, the most ambitious of Obama's anticipated reforms is also the one that's drawing the greatest opposition. Amid record home foreclosures, mounting consumer bankruptcies, and a growing number of headline-grabbing investment scandals, the White House seeks to create a Consumer Financial Protection Agency (CFPA), a watchdog organization that would regulate and protect consumer lending and investing. The new agency would be like an FDA for financial products and services. Its officials would ensure that loans, mortgages, credit card agreements, and investment vehicles are customer friendly and easy to understand. It will also police the financial industry, looking out for unfair, deceptive, or abusive practices.
President Obama outlined the agency's mission in a weekly address days after he unveiled the plan. "It will have the power to set tough new rules so that companies compete by offering innovative products that consumers actually want--and actually understand. Those ridiculous contracts--pages of fine print that no one can figure out--will be a thing of the past," the president said. "You'll be able to compare products, with descriptions in plain language, to see what's best for you. The most unfair practices will be banned. The rules will be enforced."
The agency would also engage in financial literacy, imparting lessons of good money management to the American public. As outlined in the White House's draft, the legislation seeks to encourage saving and investing through greater participation in 40 l(k) retirement savings plans. It even requires certain employers to offer "automatic IRAs."
Some in the financial industry aren't happy about the proposed rules and regulations, however. Wayne Abernathy, executive director of Financial Institutions Policy and Regulatory Affairs at the American Bankers Association, maintains that the CFPA's requirements could result in higher costs to the consumer. If, for instance, firms are able to offer only a limited number of products, prices will be higher, because less risk would be spread across a given lender's financial offerings, he says. Others in the industry claim the additional costs of complying with new regulations will result in a higher cost of doing business.
But Rep. Mel Watt (D-N.C.), a member of the Congressional Black Caucus who serves on the House Financial Services Committee, believes the CFPA's formation could be positive. "Firms have been making products that people don't understand, that they can't afford to repay, and that are not beneficial to them when they don't really understand what they do. From my perspective, it shouldn't be a criticism, but a blessing." Watt does, however, expect some lawmakers to oppose the idea of funding an agency to take over jurisdictions already held by other regulatory bodies.
Consumer advocates welcome the proposed changes. "What's good about the CFPA is that it's an agency dedicated to consumers," says Kathleen Day, spokesperson for the Center for Responsible Lending. "All the other agencies have a dual purpose of consumer protection and ensuring the soundness of the financial system. But the regulators have lost sight of the consumer protection angle." Lauren Saunders, managing attorney at the National Consumer Law Center, says, "Anytime you hear someone opposing this agency, just remember where the status quo has left us."
MONEY HELPERS
While you're waiting for Congress and the White House to agree on new consumer protections, here's where you can go for help:
The Federal Trade Commission's
Bureau of Consumer Protection
www.ftc.gov/bcp/index.shtml
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U.S. Financial Literacy and
Education Commission
www.rnymoney.gov/default.shtml
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National Foundation for
Credit Counseling
www.nfcc.org/index.cfm
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What Obama wants the Consumer Financial Protection Agency to do for you:
1 Police the financial industry for unfair, deceptive, or abusive behavior toward consumers.
2 Write and enforce new regulations governing credit cards and mortgages.
3 Encourage lenders and credit card issuers to make new, easy-to-understand products available.
4 Promote financial education and sound money management to the American public.
5 Prod companies to be more transparent about complicated products and fees.
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