Subscribe to this BlogHow Obama's financial watchdog could protect you
The sweeping financial reforms President Obama announced today would bring about one important victory for consumers — a new financial product safety commission.
As described in a Treasury Department white paper, the Consumer Financial Protection Agency (CFPA) would have jurisdiction over credit cards, mortgages and other payment products, which were previously regulated by various banking agencies. The agency's mission would be to ensure that consumers have a clear understanding of the financial products they use, as well as to protect them from abusive or unfair practices.
As President Obama said in today's speech, "This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want — and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you."
Consumer advocates are hailing the proposed agency. "By setting up a single consumer financial protection agency, the administration is ensuring that the same rules will apply to similar products across all financial institutions," says Kathleen Day, spokesperson for the Center for Responsible Lending. "Companies will not be able to shop regulators for the most favorable treatment." States would be free, however, to make laws even stricter than federal rules.
The CFPA has already received support from two influential Congressmen — Sen. Chris Dodd (D.-Conn.) and Rep. Barney Frank (D.-Mass.), who both chair key financial committees. Still, the proposed reforms face stiff resistance from Republicans in Congress, as well as from financial services lobbying groups. The American Bankers Association, for one, has announced its oppposition.
Still, if Obama's proposals are enacted, they could make a big difference to your pocketbook. Here's a quick look at how you might benefit:
Mortgages: To make consumer choices easier, all lenders would be required to offer a "plain-vanilla" mortgages with simple terms and pricing along with other financial products. Consumers would also be entitled to receive clear disclosure about their mortgage, including the risks and benefits. Prepayment penalties would be restricted or banned.
Mortgage brokers would have to ensure that the products they sell are affordable to borrowers, as well as avoid conflicts of interest. The new rules would ban "yield spread premiums" — a form of compensation from lenders that have encouraged brokers to push higher-priced loans that are less affordable for consumers. Brokers would also be paid over time based on the loan performance, rather than a lump sum at closing.
Credit. The agency would regulate forms of consumer credit that previously fell through the cracks, such as overdraft protection plans, according to the White House proposal. For example, the CFPA might prohibit charging for overdraft coverage unless the consumer has opted in to the plan.
Help for low-income families. A key mission for the new agency would be to enforce the Community Reinvestment Act and fair lending laws. This would ensure that low-income communities have access to financial services, lending and investment.
Tell us, what do think of the notion of a Consumer Financial Protection Agency?
My concern is why haven't the agencies that were in place like Consumer Protection Agencies done more about these banks and financial situations???
Mortgage preditory lenders usually looked at by HUd or ACLU who should have done something before and stopped them.
I applaud this, but because the financial industry has been in cahoots with government for so long- this is hard to believe that things will change.
Hope they do THEIR job and this isn't just lip service.
I feel that President Obama's main interest is for the people. This move in his administration has been needed for years. If there had been clear understanding in mortgages and financial school loans, we would have been better off. Since he is cleaning up over due mess, the mission to ensure that consumers have a clear understanding,from this point on, of the financial products they use, as well as to protect them from abusive or unfair practices. On any given day, one can walk and see so many different prices for the same products. All of that fine print on applications is totally ridiculous. Last but not least, where were all of the ideas and criticisms before President Obama?
Miguel Tinoco Reply: June 18th, 2009 at 10:50 am
Godspeed to all of us. This new finacial agy that President Obama wants to set up is a low blow to the American people..What makes me mad is that during his most recent speech he MISLEAD the American people to conitnue to believe that the Federal Reserve Bank is a US government Agy when in effect it is not. In other words, we are for sale and a buyer is approaching like a big bad wolf savoring the meal to come. I hope they all fall in the same hole that they are digging for us. I also hope that the American people awakens to realize our awful situation and fight for their rights as our forefathers did.
I am sure that this plan will work just as well as that amazing HVCC appraisal plan by Andrew Cuomo. Talk about someone that knows nothing. Hey Andrew, how did that plan help the consumer when he cant move the appraisal to another lender if for some reason they get denied. Now the consumer has to pay for another appraisal. Worked well Genious.
It truly is amazaing how the Fed is going to use the mortgage broker as the scapegoat for their and the lenders mistakes. Brokers don't create loans, we just sell the products they offer.
Government intervention causing Fannie and Freddie to lower their underwriting standards was the beginning of the bad situation we face today. Typically when the government steps in to "help" it has unintended negative consequences. There are already plain vanilla loan programs available to those who are financially responsible, including all levels of income.
Its amazing how Barney Frank say there and watched the entire mortgage industry and thought nothing was wrong when it was going well. Maybe he should have gotten up off his butt then.
The Fed is saying can you believe that people make more money by charging a higher rate, did you know that a t shirt sells for $10 at one location and $20 at another. Maybe we cap sears and macys, etc to what they can charge. Idiots.
Bank's are running scared now and not lending to qualified applicants; wait until this commission is formed. If you don't "walk on water" today, your chances of getting a mortgage loan are slim and none. The big mortgage companies i.e. Countrywide, New Century, Ameriquest, WAMU, Option One, that caused this meltdown are gone along with their "Exotic loan products" and faulty underwriting practices.
The mortgage industry went from one extreme to the next. I have been in the banking and mortgage industry for over 35 years and I've never experienced lending practices that we see today. Companies need to hire underwriters that are held accountable for the loans they approve; not robots. When the economy starts to improve and people who lost their jobs go back to work but their credit was tarnished – under today's credit standards–who is going to make mortgages to these people.
Maybe we should pay the president and the congress over time based upon THEIR performance- as a mortgage loan officer, this is the most absurd thing I have ever heard!
This agency could help, but still to early to tell. Along with the recently credit card reform ( http://www.savingtoinvest.com/2009/05/credit-card-reform-bill-penalizing-good.html ) there is also a risk of over regulation, which just ends up costing consumers more. Smart and transparent regulation is more important than blind regulation.
The government should not be dictating what financial products financial institutions offer (i.e. "all would have to offer a plain vanilla mortgage.." Consistent disclosure of terms and risks is acceptable. CRA was bad legislation — do not build on or expand it.
If this bill passes everyone could forget about obtaining a mortgage to purchase or refinance a home. This will drive broker out of business, not to mention appraisers, title company, real estate brokers and agents, and everyone in the mortgage business completely. Think that's bad, NO ONE will be able to borrow a dime, in fact lenders may start to call in their loans.
All of you who voted for this guy are going to feel the pain as well, hopefully you won't be that stupid again. Call your politian in Congress and tell him to vote against this madness.
Remember, we did credit, and if we had some easy credit now wouldn't it be helpful.
I have been in banking/lending for 19 years….and have been lied to by the "American public" concerning income more times than one. There is enough blame to go around to everyone in every industry.We were the bad guys when we were lending, now we're the bad guys when we tighten standards. There's no winning. Face it, there's going to be a time that people have to pay down debt before they are within their limits to borrow again. NO MORE STATED INCOME FOLKS!!!
As for the 5% that are incurring overdraft fees…..sounds like they need to learn to balance their checkbooks. Alot of them do it on purpose when they realize they can!!