A New Consumer Agency With Enforcement Teeth
By JANE J. KIM
President Barack Obama's proposed regulatory revamp includes sweeping changes to help consumers make informed decisions about financial products, save for retirement and get better investment advice.
A centerpiece is the creation of a Consumer Financial Protection Agency with authority to write and enforce rules across a slew of financial products.
Firms will be given the option of offering "plain vanilla" products -- such as a credit card without hidden fees or penalty interest rates -- without having to jump through regulatory hurdles. The goal is to make it possible for consumers to shop around without worrying about getting burned by the fine print.
"The new agency is about making consumer credit markets work," said Elizabeth Warren, chairman of the Congressional Oversight Panel, which oversees the government's Troubled Assets Relief Program. Ms. Warren had proposed the idea of a financial-products safety commission in an article published in the journal Democracy in 2007.
"Today, it's not possible for a customer to compare three or four credit card products to determine which one is the cheapest or which one poses the least risk," Ms. Warren said. "This agency is about changing that."
Consolidating the job of consumer oversight into one agency could help resolve consumer disputes more quickly and effectively.
Not only would the agency have the authority to write rules and require better disclosure, but it would also have the teeth to enforce its mandates. The agency, for example, would be able to ban financial products it deems overly risky.
"If you're going to pitch more complex, dangerous products, you face higher potential fines and higher regulatory scrutiny," said Travis Plunkett, legislative director of the Consumer Federation of America.
Firms may have to put "warning labels" on their alternative products or require applicants to fill out financial-experience questionnaires, according to the administration.
"This is a game changer," said Ed Mierzwinski of U.S. Public Interest Research Group, a consumer watchdog in Washington, D.C. "This is to me as big as creating deposit insurance in the 1930s."
The proposal also aims to resolve a long-simmering debate over how brokers and investment advisers are regulated by establishing a fiduciary duty for broker-dealers offering investment advice.
Currently, brokers are only required to offer products and advice that are deemed suitable for their clients. By contrast, investment advisers operate under a fiduciary standard, meaning they have to give investors advice that is in their best interests.
A proposal for an automatic individual retirement account would help those whose employers do not offer a retirement-savings plan by diverting regular payroll deductions to an IRA unless the employee opts out.
The Obama regulatory revamp also proposes increasing tax incentives for retirement savings for families that earn less than $65,000 a year. |
