New agency to protect consumers
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Kai Ryssdal: The other major part of today’s financial overhaul has to do with you and me. Anybody who’s ever taken out a loan or even a credit card understands what the president was talking about this morning when he said this.
PRESIDENT BARACK OBAMA: The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out. Those things will be a thing of the past.
What the White House proposes in response is a new regulator, one that would protect consumers. Help them figure out what lenders who hide behind those confusing sales pitches are really trying to get at. It’ll have the catchy title of the Consumer Finance Protection Agency — CFPA. As Marketplace’s Jeremy Hobson reports from New York.
JEREMY HOBSON: Everyone who sells consumer financial products would have to answer to the CFPA whose mandate would be protecting consumers. Protecting them from complex credit-card deals and mortgages and pushing lenders to offer more plain vanilla products with less fine print.
The current regulatory system is split among several agencies. And Ellen Harnick with the center for responsible lending says lenders take advantage of that.
ELLEN HARNICK: I think the key thing is that you as a regulated entity don’t get to choose the weakest regulator.
Over at the conservative American Enterprise Institute, Peter Wallison is troubled by the new regulator. He says it’ll paint with too broad a brush and deny savvy people products they understand just fine.
PETER WALLISON: Some distinction has to be made between consumers. That is, for some people it’s not too risky.
Wallison says over-regulation will stifle the innovation of new financial products and that could end up hurting ordinary Americans. Not so, says Ellen Harnick.
HARNICK: If you don’t regulate, then you have unlimited innovation, including extremely damaging innovation.
The kind of great ideas that created credit default swaps and sub prime adjustable rate mortgages. But Christopher Whalen at Institutional Risk Analytics says consumers won’t be able to rest easy until the culture on Wall Street changes.
CHRISTOPHER WHALEN: There’s different types of predatory behavior. I mean, at the highest level, you have the biggest banks that are really not profitable unless they do bad things.
Just regulating financial products he says attacks the symptoms, while leaving the underlying cause untouched.
In New York, I’m Jeremy Hobson for Marketplace.
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