Elizabeth Warren, head of the Congressional Oversight Panel for the TARP, has been a vocal advocate for the need for a financial product safety commission. The notion, which seemed quixotic a few weeks ago, is getting consideration by the Obama Administration.
Given how industry friendly Team Obama’s financial services industry measures have been, it runs the risk of (correctly) being seen as captured. The abuses on the consumer side have been so egregious that reining them in is a clear winner with the public, and serves to divert attention from how accommodative other measures have been.
Nevertheless, a measure like this, properly done, would represent real progress.
From the Washington Post:
The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds…
Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said.
Sources, who spoke on condition of anonymity because discussions are ongoing, said talks have begun with industry officials, lawmakers and other financial experts about the proposal, which would require legislation…
The proposal could centralize enforcement of existing laws and create a vehicle for imposing tougher rules.
The idea is likely to face significant opposition from industry groups, which argue that stricter regulation limits the availability of financial products to consumers.
It could also trigger a massive regulatory turf war. Banking regulators and agencies such as the Securities and Exchange Commission, which regulates mutual funds, could stand to lose powers, personnel and funding. Those agencies are likely to argue they are positioned to protect consumers because they oversee the financial firms directly and have long experience writing and enforcing rules governing financial products….
Such a commission could be very powerful. A number of sweeping federal laws already offer broad protection to consumers of financial products, but those laws have been lightly enforced in recent years.
The Department of Housing and Urban Development, for example, has clear authority to crack down on companies that charge excessive closing costs on mortgage loans, but repeatedly postponed planned reforms in the face of industry opposition.
Warren’s proposal initially found little support in Washington, but the mood has shifted dramatically with the onset of the financial crisis and the election of a Democratic administration.
In March, Sen. Richard J. Durbin (D-Ill.) introduced legislation to create a commission like the one that Warren had described. The legislation is co-sponsored by Sen. Charles E. Schumer (D-N.Y.) and Sen. Edward M. Kennedy (D-Ma.). The White House’s support would greatly improve its chances of passing…
“The Federal Reserve was supposed to do this, but they were asleep at the switch,” Schumer said at the time.