U.S. bankers lined up against a new federal oversight agency proposed by President Barack Obama, even as consumer advocates back the regulator as a way to help people understand the financial products they use.
“It would simply complicate our existing financial regulatory structure by adding another extensive layer of regulation,” American Bankers Association President Edward Yingling said in remarks prepared for a House Financial Services Committee hearing today in Washington. Improving existing rules “is likely to be more successful, more quickly, than a separate consumer regulator.”
Financial products are too complicated to permit consumers to compare terms with ease, said Elizabeth Warren, a Harvard University law professor who has backed a federal agency, in remarks prepared for today’s 10 a.m. Washington hearing.
The Consumer Financial Protection Agency is part of Obama’s regulatory overhaul to rein in abuses that contributed to the worst financial crisis since the Great Depression. The hearing is the first in a series by the House Financial Services Committee to transform the Obama proposal into legislation.
Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd will lead the effort in Congress to enact Obama’s plan and have expressed support for the new agency.
The agency would have power to ban “unfair terms and practices,” punish companies for violations with fines and penalties and write rules to set higher standards for banks and non-bank companies when they sell products.
‘Obscure, Trick’
“I am a contract law professor, and I cannot understand some of the fine print,” Warren said. “Study after study shows that credit products are designed in ways that obscure meaning and trick consumers.”
The new agency will protect the financial system by preventing a glut of high-risk loans from destabilizing the economy, Warren said.
The agency will have power to supervise and police a bank’s compliance and require institutions to offer “plain vanilla” products that are easy for consumers to understand, according to Obama’s proposal.
It will strip those powers from bank regulators, including the Federal Reserve, which has been blamed by lawmakers for not using its authority to prevent lending abuses.
Federal and state bank regulatory agencies should retain their consumer-protection authority, said Ellen Seidman, senior fellow at the New American Foundation and former head of the Office of Thrift Supervision.
“I believe that bank regulators, given the proper guidance from Congress and the will to act, are quite capable of effectively enforcing consumer-protection laws,” she said.
Structural flaws in U.S. rules compromised the independence of bank agencies, encouraging them to “overlook, ignore and minimize” their focus on protecting consumers, said Travis Plunkett, legislative director at the Consumer Federation of America.
Source: Bloomberg.
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