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A closer look at new reform bill

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Tess Vigland: It’s official. It’s final. Almost two years after the near-collapse of the financial system, the Senate voted 60-to-39 in favor of a reform bill that President Obama is expected to sign next week.

President Obama: Reform that will protect consumers when they take out a mortgage or sign up for a credit card. Reform that will prevent the kind of shadowy deals that led to this crisis. Reform that would never again put taxpayers on the hook for Wall Street’s mistakes. The reform that Congress passed today will accomplish these goals.

Vigland: And yet, there are holes. And to remind us what those are, we turned to Travis Plunkett,
legislative director for the Consumer Federation of America. He said there are three big issues to watch out for.

Travis Plunkett: This first is that automobile dealers are exempted from the authority of this agency when they loan money. Eighty percent of all car loans are issued through auto dealers or by auto dealers.

Vigland: And what’s the caution there?

Plunkett: If we’ve learned anything from this economy crisis it’s that you need to oversee people based on what they do not on who they are. Or who they say they are. And the problem here is that this agency will not have authority over dealers who loan money but it will have authority over other people who loan money to buy cars. That could result in different kinds of regulation and regulatory gaps and weaknesses that could ultimately mean that consumers who buy autos and get auto loans from dealers are treated less fairly. I should mention on the auto dealers, there’s one other piece to the story. What Congress has done is given special authority to the Federal Trade Commission to go after lending abuses by auto dealers. And maybe within a few years, auto dealers are going to rue the day that they ever tried to get a special exception from this new consumer regulators authority because the Federal Trade Commission is now empowered with expedited rule-making authority to examine auto dealer lending abuses and Congress is now up to speed on what many of those abuses are. There’s been a real education process. It’s very likely the Federal Trade Commission’s going to take new action against auto dealers who use abusive lending tactics.

Vigland: Ok, So auto dealers number one to watch. Number 2?

Plunkett: There’s a provision in the bill that allows small businesses to get an advanced look at any regulation put out by this new consumer regulator. This is an advanced look and we’re talking small busineses here. Predatory lenders can be small. We’re concerned that this provision can give a sneak peak on new protections that the agency will offer to predatory small lenders. We have no problem if the agency pays special attention to small business and how they’re affected by this regulation. We just don’t think that small businesses, particularly small lenders should get an advanced look before the public ever sees what the agency’s thinking about.

Vigland: Ok, number 3?

Plunkett: Small banks. The way that this law is written, the answer is that the bank regulators who have tradionally overseen small banks, will do the enforcement. So the question is what if they don’t do they’re job and there’s nothing the consumer regulator can do about it. There’s not even a back up authority to go in and examine the small banks books or issue an enforcement action. If that small bank doesn’t comply with consumer regulator rules. We’re a little concerned about this because all those small banks have been better behaved than big banks in the current crisis. That hasn’t always been so and sometimes small banks do offer abusive products or unfair tactics when dealing with consumers.

Vigland: One of the criticism of the bill is that so much is left to regulators to figure all this out. That it’s not in the law. How some of these behaviors will be dealt with. Are you concerned about that at all given that regulators can change from administration to administration?

Plunkett: That’s always a concern, but we’re very encouraged. They’re really isn’t a lot of discretion. The director will only report to the president. The funding for the agency, it will be hard to tamper with it. It will be hard for special interest to manipulate it or to lower it. This is going to be an agency that has the potential to really protect consumers.

Vigland: Travis Plunkett is with the Consumer Federation of American and we’ve been talking about the new Consumer Financial Protection Agency and the financial reform law that will be signed by the president next week. Thanks so much for coming in.

Plunkett: Certainly, nice to talk to you Tess.

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