Shhh, everyone, gather near and listen to Treasury Secretary Timothy Geithner deliver the most beautiful, wonderful mandate we could give to a new federal agency: “The agency will have only one mission—to protect consumers.” And with that, the Treasury Department sent to Congress legislation that will create the brand new Consumer Financial Protection Agency.
The agency will have broad powers to regulate any firm that offers a consumer financial product, including mortgages, credit cards, and other loans. Armed with subpoena power, the agency’s regulations will set a minimum standard for financial products, and won’t preempt states that chose to write tougher rules.
The new independent agency would be called the Consumer Financial Protection Agency and would be overseen by a five-member board. The administration’s proposal would allow the new regulator to levy annual fees or assessments on the financial industry to help pay for regulation, and would create a new “victims’ relief fund” to accept any civil penalties the agency collects from firms.
The consumer financial regulator would be able to force testimony and obtain information under the new regime, and would be able to broadly assess potential risks to consumers. To ensure that rules enacted by the agency are having the desired effects, the agency would also have to do a self-assessment of any significant rule it passes within five years.
The Treasury also said the agency would work with the Department of Housing and Urban Development and the Federal Reserve on efforts to eliminate unnecessary mortgage-related paperwork, among other things. It would enforce recently-enacted credit card legislation and ban unfair practices such as “yield spread premiums,” which are side payments from lenders that encourage mortgage brokers to push consumers into higher priced loans.
The 152-page bill will now head to the House Financial Services Committee. The full House is expected to vote on the measure by the fall.
Administration’s Regulatory Reform Agenda Moves Forward: Legislation for Strengthening Consumer Protection Delivered To Capitol Hill (Press Release) [Treasury Department]
Obama Unveils Consumer Protection Agency Legislation [The Wall Street Journal]