Even though he’s only been in office for 5 months, this has still be a long time coming.
And there are some important measures being introduced for home loans and consumer protection.
Many of the specific proposals will require legislation, and today’s announcement will drop the plan into an already heated debate on Capitol Hill about the eventual shape of reform. The financial crisis has forced broad consensus that changes are necessary, but there are wide disagreements about the details.
The proposed Consumer Financial Protection Agency would have broad authority to regulate the relationship between financial companies and consumers of mortgage loans, credit cards, checking accounts and other financial products. It would define standards, police compliance and penalize delinquent firms. Other agencies, particularly the Federal Reserve, would surrender some powers.
One idea highlighted by the administration is to require that lenders offer all customers standard “plain vanilla” loans with simple features and streamlined pricing, such as 30-year, fixed-rate mortgages. The sale of more loans with more complicated terms would be subjected to greater scrutiny by the agency. It could even require that customers make a written choice to select anything other than a vanilla loan.
The agency would have authority to overhaul a tangled mess of federal regulations that many financial experts regard as outdated, insufficient and inadequately enforced. An oft-cited example is the massive stack of paperwork handed to mortgage borrowers at closing, including several calculations of the true cost of the loan itself.
“Consumers should have clear disclosure regarding the consequences of their financial decisions,” the plan states.
Agreed. And while we can blame consumers all we want for overreaching in the past couple decades, let’s not kid ourselves…had these measures been in place this situation never would have happened.
However, I think the biggest news to come out of this (which isn’t in the story) is that all of the agencies that used to regulate banks will now be folded into one entity. This is so banks can’t pick and choose who will regulate them…and the notion that they could do that before makes my stomach turn. Gee, I wonder who they’re going to pick…perhaps the laziest agency?
Seriously, you don’t think the current system was royally screwed up? Check out how it worked…
Under the current system, banks can choose their regulator. Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis.
I don’t think you have to be an expert to see that this could easily lead to all sorts of irregularities. So, again, having one agency do this is the smart way to go.
More as it develops…