By Truman Lewis

June 25, 2010
After months of jaw-boning, horse-trading and hushed conversations in smoke-free steakhouses, House and Senate negotiators have reached agreement on financial reform legislation that consumer advocates are calling a big win for consumers. Banking industry lobbyists are calling it something else.

The 2,000-page legislation, which the Consumer Federation of America called a "major achievement," would establish a new Bureau of Consumer Financial Protection, an independent regulator that would be housed within the Federal Reserve. Its job would be to monitor mortgages, credit cards, payday loans and other personal finance products that are now regulated by a far-flung web of government agencies that don't always confer face to face, much less see eye to eye.

President Obama called the measure "the toughest financial reform since the ones we created in the aftermath of the Great Depression" and said the measure "represents 90 percent of what I proposed when I took up this fight."

But while consumer leaders say the new agency will be more efficient and more effective than the existing hodge-podge, the U.S. Chamber of Commerce thinks otherwise.

"It is a reform bill that, ironically, lacks effective reform," said Chamber President Thomas J. Donohue. "Rather than addressing the core causes of the financial crisis, this bill adds new regulatory agencies to an already antiquated system and grows a bloated, ineffective bureaucracy.

"It exacerbates uncertainties for Main Street and Americas job creators, and consumers will pay the ultimate price in higher fees, less choice, and fewer opportunities to responsibly access credit," Donohue said.

What it does

Besides creating the Bureau of Consumer Financial Protection -- will it be called BOCFIP, do you think? -- the House-Senate version would provide:

Free credit scores You would have a right to see your credit score if you were turned down for a loan or were offered an interest rate you thought was excessive. Currently, you can see your credit report but not your score.

Tighter mortgage standards Standardized federal rules would replace widely -- sometimes wildly -- varying state regulations. Among the provisions: homeowners would not be hit with pre-payment penalties for paying off mortgages early.

Debit card fees Score one for store owners, who would be allowed for the first time to set minimums for credit card purchases. The Fed would also be permitted to ride herd on MasterCard, Visa and other big card issuers to ensure they are charging "reasonable and propotional" fees to merchants.

Slightly tighter auto financing rules Politically powerful car dealers managed to get themselves removed from oversight by BOCFIP but, as what you might call a trade-in allowance, the Federal Trade Commission will be authorized to develop rules to protect car buyers from predatory financing.

Wall Street reined in The legislation contains some very complex, intricate and even confusing provisions that are portrayed as heading off future finiancial collapses. Trial lawyers are ecstatic that investors will be able to sue Moody's, Standard and Poor's and other business rating agencies when things go sour. CEO pay will be scrutinized and derivatives will be traded publicly. This doesn't affect consumers directly but, as we all learned the hard way the past few years, when Wall Street gets the flu, the rest of us get pneumonia.

'Toughest in our history'

Taking on the skeptics, President Obama said the the package amounted to "the toughest consumer financial protections in our history, while creating an independent agency to enforce them.

"Now there will be one agency whose sole job will be to look out for you," he said at a White House briefing today. "Credit card companies will no longer be able to mislead you with pages and pages of fine print. You will no longer be subject to all kinds of hidden fees and penalties, or the predatory practices of unscrupulous lenders."

Consumer leaders, who had feared lobbyists would ride roughshod over the bill's tougher provisions, were generous in their parise.

This bill marks the biggest transformation of financial regulation in this country since the Great Depression, said Consumer Federation of America Legislative Director Travis Plunkett.

Its high time that consumers have a cop on the beat to rein in abusive and deceptive financial products and services. The bill sets up an autonomous consumer bureau with independent funding, which are key elements for an effective regulator, Plunkett said.

U.S. PIRG Consumer Program Director Ed Mierzwinski said that Congress had "rejected the self-serving efforts of some two thousand Wall Street lobbyists who spent hundreds of millions of dollars over the past 18 months to weaken reforms targeting the practices that sparked the financial mess they caused for consumers and taxpayers.

Without a doubt, the centerpiece of reform is the establishment of the new, independent Consumer Financial Protection Bureau with only one job: protecting consumers who buy financial products at banks and non-bank lenders, from mortgage companies to payday lenders. While the bureau will not regulate predatory car dealer practices, a last minute compromise gives the Federal Trade Commission new authority over car dealers who initiate loans," Mierzwinski said.

Financial advisers, who will be only slightly more tightly regulated under the legislation, were guarded in their comments.

I'm not sure it does anything to address how the last crisis happened and to prevent another one from happening, said J. Preston Byers, an adviser with ClearBridge Wealth Management, quoted by industry newsletter InvestmentNews. To me, it was a rushed bill and the administration needed a win.