November 13, 2009
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News: Dodd Introduces New Financial Protection
Legislation aimed at strengthening consumer financial protection was introduced on Tuesday by Senator Christopher Dodd, (D-CT) Chairman of the Senate Banking Committee. If passed, the legislation will create the Consumer Financial Protection Agency that will operate separately from the Federal Reserve. The agency will be responsible for overseeing financial products including debit and credit cards, mortgages, auto loans and other consumer loans. The sole responsibility of the agency will be to protect credit card customers and other financial products' users. The agency will aim to target fraudulent and deceptive practices and enforce rules that mandate lenders provide transparency in contract terms and conditions. Senator Dodd has attributed an uncertainty in the consumer loan and credit card environment as a contributing factor in the recent breakdown of the U.S. economy. He also maintains that the Federal Reserve has neglected to take steps to rectify problems in spite of pleas from Congress.
Proponents of the bill say an overlap of authority between several existing financial agencies often causes confusion and oversight in the credit card, mortgage, and loan industry. The Consumer Financial Protection Agency would be the primary financial regulator and override the powers of all these agencies including the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). The agency will also be responsible for assuring lenders follow the rules that are set down by the new credit card reform legislation and institute stiff penalties to any organization that violates the law.
The new Consumer Financial Protection Agency would consist of a five member board and would have the power to act on abusive and deceptive practices by credit card companies and other financial institutions. The protection agency is not the only unit proposed by the bill. It would also create a new Office of Financial Literacy; introduce regulations for the banking industry; and strengthen regulations for credit bureau reporting agencies, executive pay, hedge funds, over-the-counter derivatives, and mortgage-backed securities.