Wednesday, July 1, 2009

Protecting Consumers Against Lenders

The Obama administration is looking to start a regulating agency protecting Americans regarding various financial instruments such as home loans, pay day loans, credit card fees as well as others. If it does half of what it promises we are off to a good start. Which means the lending industry is trying to kill the agency upon proposal. When your income is based on excessive fees there is little incentive to reduce them. And since the bubble burst we are seeing new and interesting ways to add the excessive fees to consumers. The new agency is described in this New York Times article titled Banks Balk at Agency Meant to Aid Consumers. Let's take a look -

The Obama administration fired an opening shot on Tuesday, sending Congress a detailed, 150-page proposal for an agency that would set new standards for ordinary mortgages, restrict or prohibit risky loans, investigate financial institutions and enforce new laws aimed at protecting credit card customers.


The industry’s heated reaction presages an intense lobbying battle that is already beginning. Opponents include JPMorgan Chase and Wells Fargo as well as thousands of regional and local banks that have close ties to lawmakers in every part of the country. But the opposition could also include countless mortgage lenders and independent mortgage brokers.


“We know the optics are bad,” said Scott Talbott, vice president for government affairs for the Financial Services Roundtable, a trade association in Washington. “If you are against a consumer regulatory agency, then everybody will say you’re against consumer regulation.”


It would give the new agency marching orders to set standards for traditional mortgages, and the agency would have the authority to demand that lenders offer those kinds of loans or give consumers the chance to opt out of riskier products.

It would also give the new agency the power to restrict or prohibit mortgages that come with hidden fees and steep penalties for borrowers who pay the loan off early. It would also be empowered to interpret and enforce the new credit card law that Congress passed last month, aimed at restricting banks from arbitrarily raising interest rates.

It would also have examiners, much like existing bank regulatory agencies, who would have the authority to go into specific institutions, issue subpoenas and scrutinize their practices, demand changes and seek penalties.

While some may argue against any new regulations - we would argue that any industry that is powerful enough to take the country requires some oversight.

Hopefully the proposal does not get watered down.

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