Financial reform bill agreement touted as a big win for consumers

The United States capitol on a sunny day

Financial reform legislation agreed upon by congressional negotiators this week establishes a new consumer protection agency to consolidate oversight of credit and lending. Flickr photo.

A financial reform bill agreement by congressional negotiators was announced Friday. The House and Senate will vote on it next week. If it passes, the financial reform bill changes most of the rules that form the relationship between financial institutions and consumers. Some call the financial reform bill a big win for consumers. Others call the bill a big shaft for consumers.

A new consumer protection agency

The financial reform bill gives consumers a brand new agency to watch out for their interests. The Consumer Financial Protection Bureau will write rules and monitor loan products to keep consumers safe. Business Week reports that Democrats defeated Republican efforts to scale back the powers of the proposed consumer agency. But the financial reform bill sets up an autonomous bureau with independent funding. It will be part of the Federal Reserve and has the power to write and enforce rules banning abusive practices in credit-card and mortgage lending.

Fiduciary standards hurt consumers?

A provision in the financial reform bill that requires brokers to abide by a fiduciary standard when they give investment advice has those in that industry crying foul.David Loeper of Forbes says that part of the financial reform bill will hurt the protection of consumers. He says that because the bill requires brokers to be held to a fiduciary standard enforced by the Securities and Exchange Commission, just as investment advisers are today. According to Loeper, that means consumers won’t be able to tell the difference between brokers and investment advisers. Apparently he thinks that being able to trust both species equally isn’t such a good thing.

Consumer agency consolidates oversight

The financial reform bill’s Bureau of Consumer Financial Protection would consolidate oversight of a wide variety of financial products, including mortgages, credit cards and payday loans. ABC News reports that responsibility for these areas is currently scattered across a variety of government agencies. Experts say that creating a single supervisor will help make financial products easier to understand and not take unfair advantage of borrowers.

Consumer protection leadership

The consumer Financial Protection Bureau was designed by Elizabeth Warren, a Harvard Professor who  is chairwoman of the congressional oversight panel for the Troubled Asset Relief Program (TARP), the $700 billion government bailout of the financial industry. Democratic Senator Sherrod Brown of Ohio told Business week that he “would love” to see Warren appointed to head the agency. Brown also said he knew a lot of people who would not love to see Warren in charge.

Don’t mess with Elizabeth Warren

Warren, who specializes in bankruptcy and consumer law, called for regulations to limit credit-card contracts to a short, easy-to-read document, curb bank overdraft fees and make online credit scores free. In an interview with USA Today she said:

“I discovered the extent to which the business model of selling debt to middle-class families has changed over the past 20 years. The credit card companies and other lenders moved to a tricks and traps pricing model. The fees, the interest rate hikes and all the other surprises in the fine print have left families increasingly vulnerable. I watched hardworking, play-by-the-rules middle-class families collapse financially, and that led me to study the consumer credit market and eventually to the idea behind the consumer financial protection agency.”

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