Financial reform bill agreement touted as a big win for consumers

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 feel consumers will be shafted.

Source for this article: Financial reform bill agreement touted as a big win for consumers by Personal Money Store

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 about loan products to keep consumers safe. Business Week reports that Democrats defeated Republican efforts to try and scale back the powers of the proposed consumer agency. But the financial reform bill sets up a bureau with independent funding. It will be part of the Federal Reserve and has the power to write rules banning abusive practices in credit-card and mortgage lending.

Fiduciary standards to hurt the consumers?

A provision in the financial reform bill that requires all of the 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 might just hurt the protection of consumers. He feels that way 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 believes that being able to trust both species equally isn’t a good thing.

Oversight is consumer agency consolidation

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 seems to be 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.

The 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 explained to 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.

You shouldn't try to mess with Elizabeth Warren

Warren, who specializes in bankruptcy and also in consumer law, called for regulations to limit all 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 explained:

“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.”

Citations

Business Week

businessweek.com/news/2010-06-22/warren-should-head-new-consumer-agency-brown-says.html

Forbes

blogs.forbes.com/investor/2010/06/25/financial-reform-bill-will-shaft-consumers/

ABC News

abcnews.go.com/Business/article/financial-reform-bill-means-big-consumers/story?id=11012343&page=1

USA Today

usatoday.com/money/companies/regulation/2010-06-24-warren24_ST_N.htm