Creation of Consumer Financial Protection Agency

Wednesday, June 17, 2009, PM | Leave Comment

The centerpiece of President’s proposed regulation is the creation of Consumer Financial Protection Agency (CFPA). The regulatory revamp includes sweeping changes to help consumers make informed decisions about financial products, save for retirement and get better investment advice. CFPA will be created with authority to write and enforce rules across a slew of financial products.

CFPA will contain the following points:

  • Firms would have to offer “plain vanilla” versions of products – such as a mortgage that does not include prepayment penalties and has predictable payments – along with their other offerings. The goal is to make it easier for consumers to shop around without worrying about hidden fees.
  • The new agency is about making consumer credit markets work. Presently, it’s very difficult for a customer to compare three or four credit-card products and determine which one is the cheapest and which one poses the least risk.
  • Consolidating the job of consumer oversight into one agency could help resolve consumer disputes more quickly and effectively.
  • The proposal also aims to resolve a long-simmering debate over how brokers and investment advisers are regulated by establishing a fiduciary duty for broker-dealers offering investment advice.
  • Currently, brokers are only required to offer products and advice that are deemed suitable for their clients. By contrast, investment advisers operate under a fiduciary standard, meaning they have to give investors advice that is in their best interests.
  • A proposal for an automatic individual retirement account would help those whose employers do not offer a retirement-savings plan by diverting regular payroll deductions to an IRA unless the employee opts out.
  • Not only would the agency have the authority to write rules and require better disclosure, but it would also have the teeth to enforce its mandates.
  • The agency, for example, would be able to ban financial products it deems overly risky.

In a Nutshell
Is CFPA kind of agency long overdue? I think so. Let’s hope it works out for every American that, one way or another, will deal with their finances – mortgage, credit-card, banks and other financial institutions.

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