New Consumer Financial Protection Agency Approved by House Committee
Today, the House Financial Services Committee approved the creation of a Consumer Financial Protection Agency (CFPA) by a vote of 39 to 29. This is the first step in creating a new regulatory agency that will protect consumers. The CFPA is an important piece of the Obama administration’s plan to tighten lending regulations and help prevent future financial failures.
With this bill, states have more authority to regulate large national banks using their own stronger consumer protections on interest rates and fees. Alternatively, it would also allow federal regulators to exempt banks from state laws on a case-by-case basis.
The CFPA would enforce provisions in the CARD Act that protect consumers from sudden rate increases on unpaid credit card balances. It would also create rules that would make credit card terms more transparent and easy to understand.
Consumers need some type of protection right now. This week, many Citi customers received a large rate increase to 29.99% for no apparent reason. Cardholders are angry because issuers have significantly increased their rates, seemingly with no cause and no change that customers can request. A cardholder’s only option is to accept the changes or close the account; however, new cards are harder to come by as many issuers have reduced their risk of loans and are very selective about the new cards they issue.
The new agency would take some of the consumer protection duties from the Federal Reserve and oversee financial lending such as credit cards, payday loans and terms on savings accounts. Those exempted include retailers, lawyers, real estate brokers, accountants, auto dealers, cable companies, and credit, mortgage and title insurers.
The CFPA does not include two of the priorities of the Obama administration. It leaves out the requirement that lenders offer standardized “plain vanilla” products. It also does not include the requirement that banks take reasonable steps to ensure that customers understand what they are receiving.
The House is expected to vote on this in November, although the future of the agency will be determined by the vote in the Senate in 2010. Banks are strongly opposed to this bill and are lobbying Senators to dilute or reject it. Some legislators also oppose the idea of creating a new regulatory body.