Regulatory Reform: Consumer Protection
June 17, 2009 by Miranda Marquit
Filed under Finance
One of the biggest changes to financial system regulation presented in President Barack Obama’s regulatory reform proposal calls for the creation of an agency devoted to protecting consumers. This new agency could demand any number of reforms from banks and other financial institutions. It could require greater transparency, simpler financial products and even set caps on interest rates that could be charged for certain kinds of loans.
The new standards could also be applied to mortgage lenders, forcing them to provide the option of mortgages with simple terms, and requiring mortgage lenders to offer the best available mortgages. It might even mean that mortgage lenders have to (gasp!) make sure that borrowers can actually afford the home loans that they are getting.
In addition to protecting the run-of-the-mill consumer, Obama also wants to protect investors. His regulatory reform would require that hedge funds engage in greater disclosure and would institute the regulation of derivatives and credit default swaps.
Regulatory reform: What is needed? Or does it go too far?
While some are applauding the consumer protection measures, others are concerned that they go too far. What happens when the government sticks its fingers too much into the regulatory pie? As expected, reactions to the proposed consumer protections pretty much fall along the following lines:
- Consumer advocates call them a good balance.
- The banking industry insists they go too far and will ruin business.
I’m inclined to call them a good balance. Consumer protection is badly needed right now. While over-regulation is a stifling influence, prudent regulation can be something that eventually helps everyone. No, the economy won’t boom like it did during the era of de-regulation. But what did a massively growing (and artificially stimulated) economy get us anyway? A massive recession to balance the growth, that’s what.
What do you think of the new consumer protection agency proposed by President Obama?
Image source: Wikimedia Commons
As one financial pundit sums up this proposal….. FOSC = NBS + FDIC + NCUA + SEC + CFTC + FHFA + FOMC + CFPA + Treasury + the Fed. What an alphabet soup of failure…. so let’s add a few more letter to sweeten the pot.
No, this isn’t consumer protection; this is the illusion of protection tangled up in yet more dopey bureaucracies. How many regulatory agencies do we need? When the ones we have fail at their basic mission, the answer is to create more? And we should trust the very politicians and regulators who helped jerry-rigged the mortgage market to enable/encourage liar’s loans, nothing down mortgages and negative amortization mortgages, etc.?
They can fool some of the people some of the time, but not all of the people all the time.