How government financial reform can help you -- or hurt you

New York Stock ExchangeAs the House and Senate attempt to merge their respective financial reform bills, the Consumer Federation of America has published a consumer's guide to help people outside Washington make sense of the competing proposals.

The much-anticipated bill represents the most sweeping financial reform since the Great Depression. The CFA's consumer guide highlights key provisions of both bills and indicates how American consumers will benefit from the measures it supports.

"After what the American people have been through in the last 18 months, we deserve a strong pro-consumer and pro-investor law that will close dangerous gaps in our regulatory system," said Susan Weinstock, Financial Reform Campaign Director for CFA, in a statement. "We strongly encourage all Americans to follow this debate and let their Representatives and Senators know how they feel about the importance of a strong new financial reform law."

The CFA identifies the following two issues as key to successful financial reform:
  • Creation of a truly independent consumer financial regulator to rein in abusive lending by banks, credit card issuers, mortgage and payday loan companies and auto dealers.
  • Strengthened protections for average investors and provisions to bring transparency to credit ratings and the derivatives markets.
Although the CFA remains hopeful for pro-consumer financial reform, it warns that the millions of dollars lavished by big banks and business on lobbyists to water down the legislation may turn out to be money well spent.

"How the conferees decide these issues could tell us a lot about whether the public or special interests are winning out as the bill moves forward," CFA Legislative Director Travis Plunkett said in a statement. "Unfortunately, bank and business lobbyists have spent tens of millions of dollars to defeat and weaken desperately needed financial reforms like these."

For example, protections for average investors may be diluted due to withering industry pressure to weaken a provision requiring brokers to accept fiduciary responsibility to act in the best interests of their clients.

"Raising the standards for brokers who give investment advice is the single most important thing Congress can do to protect average, Main Street investors," said CFA Director of Investor Protection Barbara Roper. "In response to lobbying by brokers and insurance agents, however, this provision got watered down to a study in the Senate, which will do nothing to help investors. We urge conferees to adopt the stronger House provision."

The guide also spells out negative consequences for consumers if provisions the CFA opposes are included in the final bill. For instance, the CFA opposes a Senate provision requiring the future consumer financial regulator to share proposed rules with small businesses -- including those that offer "abusive financial products" like payday lenders -- before requesting public input. Such a provision, the CFA says, would allow payday lenders and others to block or delay consumer protections.

The CFA also opposes a House provision exempting roughly half of all public companies -- those with market caps of $75 million or less -- from a Sarbanes-Oxley provision requiring them to include an assessment in the annual financial audit of the company's policies and procedures to prevent fraud and ensure accurate financial reporting. The CFA says this exemption only benefits fraudulent managers who use accounting tricks to cook the books or misappropriate company funds.

"The recklessness of big banks and Wall Street firms and the unwillingness of regulators to rein in abuses triggered our economic collapse, which continues to cause great hardship for many Americans," said CFA Legislative Director Travis Plunkett in a statement. "The American people are looking to Congress to strengthen consumer and investor protections and restore the safety and soundness of the financial system."
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