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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.

By Ezra Klein  |  June 17, 2009; 4:05 PM ET
Categories:  Financial Regulation , Solutions  
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Next: A Simple Test for the Public Plan

Comments

"Plain Vanilla products" with gov't seal of approval sounds a little like a public plan. Is this a trend?

Posted by: leslie14 | June 17, 2009 4:21 PM | Report abuse

I'm still a little disoriented at having smart people with the the public interest at heart in the Executive branch. Kind of hard to get my head around it.

Posted by: jeirvine | June 17, 2009 4:41 PM | Report abuse

"'Plain Vanilla products' with gov't seal of approval sounds a little like a public plan."

How does providing a government guarantee make it a public plan? There are literally hundreds of goods and services that we interact with on a daily basis that have similar guarantees (FDIC, FDA, etc.)

Posted by: BigTunaTim | June 17, 2009 5:04 PM | Report abuse

I really, really like th name "BigTunaTim."

Posted by: Ezra Klein | June 17, 2009 5:15 PM | Report abuse

Duly noted Big Tuna. I wasn't complaining, I think it's grand.

Posted by: leslie14 | June 17, 2009 5:32 PM | Report abuse

Wow, the government is once again going to save us from ourselves. Here's an even better plan:

1. If you don't understand securities, put your money in a savings account.

2. Pay off your credit card bills and don't charge more than you can afford.

3. Don't buy a house if you can't come up with a 20% downpayment. Make sure you can afford the payments and sock away 6 months to pay for it. If you can't do those things, rent.

Posted by: ted22 | June 18, 2009 9:20 AM | Report abuse

To account for the apppaling timidity of the administration's proposed regulation, you should edit the phrase "if the financial sector nearly blows up again in 30 years" to "when the financial sector blows up again within the next 15 years." I used to work at one of the big investment banks in NYC. The people who work on Wall St. are exactly what you'd expect of any human being treated like royalty and paid a princely salary: they're astoundingly greedy and myopic.

Posted by: alhs77st | June 18, 2009 9:36 AM | Report abuse

Oh, and ted22:

Don't forget:

4) If your mortgage provider or your credit-card company sneaks in a provision that lets them jack up your required payment or interest rate just because they feel like it, or if they "accidentally" lose one of your payments, kiss your financial well-being goodbye.

Posted by: paul314 | June 18, 2009 10:36 AM | Report abuse

"Consumers could choose these options and be pretty secure in the knowledge that nothing unexpected was going to pop out of the fine print."

How about a Citizen Protection Act to prevent the unexpected from popping out of the fine print in legislation Congress passes?

Posted by: Bytheway | June 18, 2009 1:13 PM | Report abuse

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