Financial overhaul measure elicits cheers and concern
Saturday, June 26, 2010
The massive financial overhaul approved by key lawmakers early Friday was hailed by many reform advocates as offering landmark protections for consumers, even as others expressed disappointment at key omissions and wondered whether big business would exploit the bill's loopholes.
Although praising the establishment of a consumer protection agency, advocates chafed at an exemption granted to auto dealers as well as a provision that would put oversight of controversial annuities out of the reach of the Securities and Exchange Commission.
Some measures, such as stricter standards for brokers who give investment advice to individual investors, could go into effect only after a study is conducted. This frustrates some consumer activists who say it leaves the door open for continued influence from lobbyists for large financial companies.
"It's not everything we could have hoped for, but this is a big deal," said Barbara Roper, director of investor protection for the Consumer Federation of America. "There are battles that we lost, but we won the war."
The bill heads to a vote before the full Senate and House. Lawmakers have vowed to deliver it to President Obama before the July 4 holiday.
Consumer advocates pointed to new rules set forth in the bill. For example, it would require lenders, insurance agents, credit card companies and others to provide free credit scores to consumers who get turned down for a loan or are quoted a higher interest rate because of less-than-stellar credit histories.
The bill also would prohibit prepayment penalties for homeowners with adjustable-rate and other complex mortgages, which advocates say have unfairly trapped homeowners in unfavorable loans. Another provision aims to reduce incentives to create risky loans by banning bonuses to bankers and mortgage brokers based on the type of loan they sell to consumers. So-called liar loans, which helped fuel the housing bubble by putting families in homes they could not afford, would also be prohibited.
The provision receiving the most accolades from consumer activists was the establishment of an independent consumer protection bureau -- to be housed within the Federal Reserve -- with its own budget and a director appointed by the president and confirmed by the Senate.
"Finally, we're going to have this cop on the beat, that's going to have some teeth, that's going to be able to rein in abusive lending and deceptive products and services," said Susan Weinstock, financial reform campaign director at the Consumer Federation of America. "It's going to oversee . . . all sorts of things that tripped up consumers."
The consumer protection bureau would bring under one roof the oversight of a range of consumer financial products, including mortgages, credit cards, student loans and payday loans.
But it would not cover auto loans. Car dealers won an exemption after arguing that creating rules on top of existing requirements governing auto financing would drive up costs, limit vehicle financing options and prevent some consumers from getting loans.
Consumer activists who had been calling for a unified set of rules for the auto loan market -- for community banks, credit unions, auto dealers and others -- characterized the exemption as a major failing in the bill.