Financial Reform for the Rest of Us
All the financial experts I've spoken with today have been struck by how fully formed the consumer protections portion of the financial regulation white paper is. They were expecting a detailed plan for regulating Wall Street. But not such an aggressive plan for regulating the products Wall Street offers to Main Street.
But that's what the administration is proposing to do. In particular, the inclusion of a Consumer Financial Protection Agency with the ability to regulate the sort of financial products that ordinary individuals come into contact with -- credit cards, mortgages, etc -- is a positive sign. An FDA for consumer finance, some are calling it.
Elizabeth Warren explains the idea in more detail here. But aside from being a smart concept, it plays an important political purpose: This is the part of financial regulation that the Obama administration can claim is actually for ordinary people. The effort to cut down on systemic risk and give the government the authority to wind down out-of-control banks will be important if the financial sector nearly blows up again in 30 years. But such moments will be infrequent (or so we hope!). Conversely, consumers will interact with the CFPA on a regular basis. It's the part of financial reform that will affect our lives continually, rather than episodically.
One of the ideas, for instance, is to require that banks and others prominently offer so-called "plain vanilla" products (credit cards, mortgages) that have straightforward rates, simple pricing, and a government seal of approval. Consumers could choose these options and be pretty secure in the knowledge that nothing unexpected was going to pop out of the fine print. Another proposal will force credit companies to show the possible penalties in a clear, comprehensible manner. This stuff won't reshape the financial world, but it will reshape the part of the financial world that most of us interact with on a daily basis. It's the part of financial regulation that we'll actually notice.
June 17, 2009; 4:05 PM ET
Categories: Financial Regulation , Solutions
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