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Tuesday, June 16, 2009

BIrthing of Debt Slaves and the End of Democracy

Obama to Create Consumer Financial Agency With Power to Punish

By Alison Vekshin

http://www.bloomberg.com/apps/news?pid=20601087&sid=aY004TTBuCAA


June 16 (Bloomberg) -- President Barack Obama will propose creating an agency to protect consumers of financial products with the power to punish offending firms and stripping the Federal Reserve of some of its powers.

The Consumer Financial Protection Agency, to be announced tomorrow in the overhaul of financial regulations, will have the authority to ban “unfair terms and practices,” said a document obtained by Bloomberg News. Those powers now rest with Fed.

“We’ve got to make sure that we have somebody who is focused and responsible for protecting consumers, whether it’s on subprime loans, for their mortgages, for their credit cards,” Obama said today in an interview with Bloomberg Television.

Lawmakers, including Senate Banking Committee Chairman Christopher Dodd, have faulted the Fed for not using its authority to ban “unfair or deceptive acts” in consumer lending, and have opposed expanding the Fed’s power to act as a systemic-risk regulator for financial markets. The Fed has responded by writing rules strengthening consumer protections in credit-card and mortgage lending.

“In some cases, we’re expanding modestly the Fed’s powers,” Obama said. “In other circumstances, we’re actually going to relieve them of some responsibilities, for example, on the consumer side.”

Fed spokeswoman Michelle Smith declined to comment.

“You’re separating out the regulation of the entity from the regulation of the products,” Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, said in a telephone interview. “Under this proposal, the two regulators will each only have half the information.”

Fines, Penalties

Obama’s plan will let the agency set mortgage rules, write rules for banks and non-bank companies, supervise and examine institutions for compliance, and set fines and penalties for offenders, according to the document.

It resembles a proposal introduced last week by Dodd, who will lead efforts in the Senate to enact Obama’s proposals. Dodd said the agency should have enforcement authority over credit and bank products and shield consumers from predatory practices of mortgage brokers and banks.

Treasury spokesman Andrew Williams didn’t respond to a call and e-mail seeking a comment on the document.

The U.S. agency will have the power to require companies to inform consumers about the risks of the mortgage and to offer a “plain vanilla” product with straightforward terms, according to the document.

Unfair Practices

The agency will get authority to ban unfair practices such as yield spread premiums and restrict prepayment penalties in mortgage lending.

“Our advice to the administration is going to be to vest exclusive authority over unfair and deceptive acts and practices to this agency,” Travis Plunkett, legislative director of the Washington-based Consumer Federation of America, said in a telephone interview. “This proposal will provide consumers much more assurance that the financial products they are using are fair and sustainable.”

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