Administration sends Congress consumer legislation

WASHINGTON — The Obama administration sent Congress legislation today to create a new Consumer Financial Protection Agency designed to protect Americans from unscrupulous practices and make financial products easier to understand.

The 152-page draft bill would create a five-member board to run the agency with four members nominated by the president and confirmed by the Senate. The fifth member would be the director of the new National Bank Supervisor, the merged agency the administration is proposing to create to take over bank regulation duties.

The consumer agency is part of what would be the most comprehensive rewrite of the government’s financial rules since the 1930s. However, critics have charged that the administration’s effort doesn’t go far enough especially in the area of merging the government’s existing overlapping system of regulating the financial industry.

The administration said today that its new consumer protection agency would ensure that consumers were provided with simple, transparent and accurate information on financial products like credit cards and mortgages and also do a better job of protecting them against unscrupulous practices.

“Those ridiculous contracts with pages of fine print that no one can figure out — those things will be a thing of the past,” Obama said in a statement. “And enforcement will be the rule, not the exception.”

Treasury Secretary Timothy Geithner said the new agency’s one mission would be to protect consumers. He said the new agency would have “the authority and accountability to make sure that consumer protection regulations are written fairly and enforced vigorously.”

The finance industry opposes the idea, arguing that the agency will stifle development of new products. However, the proposal has the backing of key lawmakers including House Financial Services Committee Chairman Barney Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd, D-Conn.

In a statement, Dodd said the administration’s proposal would address “the colossal failures that led to the economic crisis with a bold and aggressive plan.”

Addressing opponents of the proposal, Dodd said, “It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers.”

But the financial industry argued that creation of a consumer agency would go in the opposite direction of trying to streamline the regulatory system and would create conflicts between agencies that regulate banks and other institutions for their safety and soundness and the new agency charged with protecting consumers.

Steve Bartlett, president of the Financial Services Roundtable, said the new agency would end up increasing the costs of financial products, reduce consumer choices and “stifle innovation and increase confusion” on the part of consumers.

The new agency would have the broad authority to protect consumers of a range of products such as credit cards, mortgages, checking accounts, savings accounts and such special services as pay day loans.

The new agency would operate independently of existing agencies and in some cases would take away some powers, most notably from the Federal Reserve.

The administration is pushing for this approach, arguing that the recent financial crisis has dramatically underscored the need for better protections against unfair and deceptive practices that were used to dupe consumers and saddle them with debts they could not repay.

In a fact sheet, the administration said the new agency would ensure that financial products include clear information to allow consumers to understand what they are getting when they sign up for a new credit card, take out a mortgage or use other types of financial products.

“By consolidating accountability in one place, we will reduce gaps in federal supervision and enforcement,” Geithner said.

Under its broader overhaul plan, the administration is pushing to give the Federal Reserve expanded powers to serve as a systemic-risk regulator for the entire financial system. The plan also would boost government powers to wind down the nation’s biggest financial institutions if they get in trouble.

The administration has also proposed to merge the current functions of the Office of the Comptroller of the Currency and the Office of Thrift Supervision into a single agency that the administration’s proposal calls the National Bank Supervisor.