New Consumer Finance Bureau Keeps Main Street Safe From Wall Street
Banks aren't too big to fail, taxpayers shouldn't have to shoulder bad decisions by corporate America, and consumers need protections from investment houses looking to boost their bottom lines, said Michael Barr, Treasury's assistant secretary for financial institutions.
"As of today, these reforms are the law of the land," Barr said in a call with reporters. "They are going to bring shadowy deals out of the dark into the light of day. These are the toughest financial reforms enacted since the Great Depression."
On Wednesday, President Obama signed into law the sweeping Wall Street Reform and Consumer Protection Act of 2010. For the average investor, these measures are designed to take the risk out of giving money to big Wall Street firms by forcing disclosure and choices, Barr said.
The legislation grew out of the recent spate of multibillion-dollar bailouts for the country's largest investment banks, and billions of dollars lost in shady investments and risky mortgages.
Grab Bag of Protections
The act creates a new Consumer Financial Protection Bureau that will work with existing agencies to create rules and more transparency across the financial-services industry, from mortgages, to credit cards, to credit scoring, and everything in between. Funding for the new watchdog agency is set at $500 million for the first five years.
The protection act makes more than $1 billion in federal funds available for families about to lose their homes. On a more basic level, the act also caps credit card fees.
The agency is expected to be up and running in a year's time, and its budget will be capped, only allowing incremental increases for staff.
"The new agency will provide protections from people getting in loans that they didn't qualify for, unfair practices by auto dealers and it will put limits on debit card swipe fees," Barr said.
Barr, along with Harvard Law professor Elizabeth Warren, are being mentioned as finalists to run the new bureau.
Not everyone sees the reform as being either consumer- or business-friendly. Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce, said the law will have "unintended consequences" and will create uncertainty for businesses.
The consumer protection rules are a shared responsibility, not just a punitive approach to business, according to Barr. While the agency can enact rules for more transparency in financial products, the financial industry needs to promote competition on price and quality, "not on tricks and traps."
And consumers have a responsibility to pay more attention before signing non-traditional financial agreements.
"These are the new rules of the road, and they will bring benefits to individuals and families," Barr said.