Thursday, June 18
Posted 4 p.m.
Bankrate reporter Leslie McFadden contributed this entry.
Yesterday President Barack Obama detailed his plan to overhaul financial regulation. Among his proposals was the creation of a new federal agency, a Consumer Financial Protection Agency, or CFPA, to regulate credit cards, mortgages and other financial products. The independent regulator would oversee credit card issuers as well as consumer credit or debt-related service providers, such as debt collectors.
The agency would have the authority to set standards for credit card companies and penalize firms that engage in "unfair and deceptive practices," according to the speech President Obama gave yesterday at the White House.
"The most unfair practices will be banned. Those ridiculous contracts -- pages of fine print that no one can figure out -- will be a thing of the past. And enforcement will be the rule, not the exception," he said.
According to the 89-page plan issued by the Obama administration, the agency would have the power to:
- Regulate unfair, deceptive or abusive acts or practices for all credit products.
- Require that disclosures to consumers be "clear, simple, and concise." The CFPA can set rules for "reasonable" disclosures, and could require disclosures to incorporate technology, such as Internet calculators that help consumers figure out how long it will take to pay off a credit card.
- Interpret and plug holes in existing consumer protection laws to defend "against unfairness, abuse or deception." Its rules would also apply to any company that provides credit or debt-related services, such as debt collectors and debt buyers.
- Curtail or ban mandatory arbitration clauses, if necessary. These statements, often buried in credit card agreements, waive your right to sue or join a class-action lawsuit against the lender. Disputes are handled by a third party, who often rules in favor of the creditor.
- Promote and set standards for "plain vanilla" products, which are supposed to have simple terms and "straightforward" pricing. Issuers would have to display such offers prominently.
- Collect and track consumer complaints, ending confusion about where to report problems.
The plan is subject to change, and must win congressional approval. Treasury Secretary Timothy Geithner will lead with the first hearing, which was rescheduled from today to a later date.
Already the proposal has drawn some criticism The regulatory revamp "needlessly rips apart all the existing regulatory agencies, eliminates charter choices and creates a new agency with powers to mandate loans and services that go well beyond consumer protection," said Edward Yingling, president of the Washington D.C.-based American Bankers Association, in a statement.
While Congress debates the details, you can further your credit education for free at Bankrate.com. Compare credit cards, use our calculators and submit questions for the Credit Card Adviser column.
Questions? Comments? E-mail Plastic_Rap@Bankrate.com.