Consumers: Do You Need Protection?by Tim Manni
Consumers, we want to hear from you — share with us your opinions and reactions to the Consumer Financial Protection Agency (CFPA) bill that is about to make its way to the floor of Capitol Hill. National Mortgage News (NMN) wrote yesterday that the legislation — part of a massive overhaul of the financial system — will begin to receive attention by Congress this fall.
The House Financial Services Committee probably won’t take any action on a regulatory reform measure until mid-October and the first markup session may not involve the creation of a Consumer Financial Protection Agency. Chairman Barney Frank, D-Mass., wants to mark up the CFPA bill first, but that could change…
As is the case with any pending law, the CFPA has a series of “friends and foes” as The Hill puts it. While consumer advocacy groups are largely in favor of the CFPA, the financial industry seems less inclined to the idea.
Plain Vanilla Products
The idea of largely limiting new financial products to “plain vanilla” or overly basic products, has perhaps received the most attention from the media so far. If you follow us regularly, you are familiar that we largely disagree with this idea. Our stance is that by narrowing the mortgage market (for example) to “plain vanilla” products, Congress could unwittingly eliminate products like adjustable-rate mortgages that have helped a lot of responsible borrowers get homes.
Federal mortgage entities like Fannie Mae and Freddie Mac offer conforming products and nothing else. The inception of “plain vanilla” products could shrink the private industry even more than it already has. For more on this subject, be sure to read our five-part article series “In Defense of ARMS.”
One section of the “friends and foes” article from The Hill yesterday explains how one topic up for debate could increase consumer costs:
The administration proposed that the agency would set a minimum for regulation. Regulators and lawmakers at the state level would then be free to pursue stricter or additional regulations. That has business lobbyists worried and cuts to the heart of a long-running debate about state versus federal rights. The financial industry argues that by merely setting a floor for regulation, the proposal raises the specter of firms complying with a patchwork quilt of state laws. A range of laws would, industry lobbyists argue, increase the burden on firms and make compliance much more expensive. Those costs might then be passed on to consumers in the form of higher fees or less attractive deals.
Advantages of CFPA
A guest opinion article published in The Oregon yesterday outlined the perceived advantages of the CFPA, and explained why some proponents feel that the Agency should be created to stand alone, instead of leaving the Fed in charge of monitoring consumer protection:
Having fought a long-term, largely unheralded battle against abusive lending practices, the advocates have come out very strongly in favor an independent Consumer Financial Protection Agency.
The CFPA would have many desirable features: It would lodge clear and exclusive responsibility for borrower safeguards in a single, consumer-focused agency; it would minimize regulatory jurisdiction shopping and broaden authority to deal with abusive practices wherever found. The agency would have new authority and tools for regulating and simplifying credit products (banning tricks, traps and financially harmful features and calling for “plain vanilla” mortgages); it would create new lender legal obligations toward borrowers and would set standards for assuring borrower suitability.
So here are some of the pros and cons from a couple different perspectives. As consumers, do you feel you need protection, or are you skeptical of a Federal agency that could rewrite an industry?