Consumer advocates hail new agency as key reform
Advocates such as Harvard's Elizabeth Warren, who first envisioned the new agency that Congress decided to locate within the Federal Reserve, said it would be independent enough to make a difference. Other provisions brought mixed praise.
Consumer advocates hail new agency as key reform
Consumer advocates such as Harvard's Elizabeth Warren - who first envisioned the proposed new Consumer Financial Protection Bureau - hailed this morning's overall deal on financial reform. And Warren said via email that the new bureau within the Federal Reserve would be sufficiently independent to make a difference:
It has been more than 20 months since the largest financial crisis since the Great Depression, and we are still living under the same set of rules we had in place before the meltdown. Thanks to the leadership of President Obama, Chairman Frank, and Chairman Dodd, that’s about to change. Members of the House-Senate conference committee and their staffs worked through the night to produce the strongest set of Wall Street reforms in three generations. They created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print. For the first time, there will be a financial regulator in Washington watching out for families instead of banks.
Ed Mierzwinski, of the U.S. Public Interest Research Group, said:
Today, Congress rejected the self-serving efforts of some two thousand Wall Street lobbyists who spent hundreds of millions of dollars over the past 18 months to weaken reforms targeting the practices that sparked the financial mess they caused for consumers and taxpayers. Instead, the House- Senate conference committee established a landmark Consumer Financial Protection Bureau, gave small investors and homeowners new protections, reined in risky bank derivatives practices, toughened regulation of financial firms, and set up procedures to shut failing institutions down, if necessary, instead of bailing them out.
Without a doubt, the centerpiece of reform is the establishment of the new, independent Consumer Financial Protection Bureau with only one job: protecting consumers who buy financial products at banks and non-bank lenders, from mortgage companies to payday lenders. While the bureau will not regulate predatory car dealer practices, a last minute compromise gives the Federal Trade Commission new authority over car dealers who initiate loans.
Michael Calhoun, president of the Center for Responsible Lending, said:
Today, House and Senate conferees reached a historic agreement to create a consumer protection agency that is truly independent from the lenders it will oversee: It will have a single director nominated by the president and confirmed by the Senate; funding that is largely insulated from meddling by industry lobbyists; and the tools and scope needed to ensure most lenders operate under one set of common-sense rules. That's a win for families, small businesses, taxpayers and the economy. (Click here to read his whole statement.)
The Consumer Federation of America, and its director of investor protection, Barbara Roper, praised the bill, including its imposition of a fiduciary duty on brokers when they give investment advice. But the CFA raised concerns about other investor provisions. Click here to see the CFA's reaction to the compromise, including these comments on its investor provisions:
After months of wrangling, the Conference Committee delivered on the issue identified as the top priority for Main Street investors – imposing a fiduciary duty on brokers when they give investment advice. The conference report combines a six-month study with full and unimpeded authority for the SEC to impose the same obligation on brokers to act in the best interests of their customers that all other investment advisers now face. “This is a good compromise and a major win for investors,” said CFA Director of Investor Protection Barbara Roper. “Now it will be up to the SEC to deliver on this promise,” she added, “but with strong statements from Chairman Schapiro, Commissioner Walter, and Commissioner Aguilar in favor of a fiduciary duty for brokers we are confident that progress on this long-delayed reform is finally on its way.”
The Investor Protection title also includes additional measures to create a powerful new advocate for investors within the SEC, to eliminate or limit the use of pre-dispute binding arbitration clauses in brokerage and investment adviser contracts, to improve disclosures, to reform broker-dealer compensation practices, and to strengthen the SEC’s enforcement tools. Unfortunately, it also includes two provisions that seriously erode investor protections. One weakens protections against accounting fraud at a majority of public companies – those with under $75 million in market capitalize – and the other prevents the SEC from regulating equity-indexed annuities, overturning a court decision that found them to be securities and deferring to weaker insurance rules.
I blogged earlier on the exemption for auto dealers, which consumer advocates generally opposed and consider the deal's largest drwaback. Click here to see an exchange between Georgetown law professor Adam Levitin and a blogger who says he works in auto financing.