The Financial Reform Bill Highlights Need for Real Reform
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Creation of the CFPA & More
On Friday, the House of Representatives passed the Wall Street Reform and Consumer Protection Act (aka HR Bill 4173). The vote was 223-202. If it were to pass the Senate, the bill would create the regulatory Consumer Financial Protection Agency (CFPA) in addition to other Wall Street and financial institution directed reform measures.
Republican Opposition
Obama applauded the passing of the bill, but blasted Republicans and finance lobbyists in his weekly address and on a 60 Minutes interview airing on Dec. 13 for trying to prevent reform in light of the 2008 economic collapse. Zero Republicans were in favor, (in addition to 27 Democrats who opposed the legislation). Last week, top House Republicans urged more than 100 financial industry lobbyists to work harder to defeat the bill. Lobbyists have spent more than $300 million this year trying to shut the bill down. Republicans argue that the CFPA would limit product innovation and dictate what type of loans consumers should receive in certain situations.
According the White House, as stated on
financialstability.gov, the CFPA would:
1. Provide protection against unfair credit card rate increases and late
fee traps.
2. Set guidelines for simple “Plain Vanilla” mortgage products.
3. Duties of care for mortgage brokers to avoid broker conflict of interest.
4. Ban unfair side payments from lenders to mortgage brokers.
On Executive Compensation
The bill would also oversee executive compensation practices (although not the compensation amounts). In the 60 minutes interview, Kroft asks Obama if he thinks that bailed out banks repayed TARP money just to avoid government oversight on compensation and pay. “I think that in some cases, [to be able to pay bonuses] was the motivation,” Obama responds. “Which I think tells me that the people on Wall Street still don’t get it…They’re still puzzled why it is that people are mad at the banks. Well, let’s see. You guys are drawing down 10, 20 million dollar bonuses after America went through the worst economic year…in decades and you guys caused the problem.”
In all fairness, they do seem to get it, they just don’t seem to care.
Bittersweet Response from Consumer Groups
Some consumer groups see some benefit in the CFPA, yet argue that the bill does little to address breaking apart ‘too big to fail’ financial institutions such as Goldman Sachs and JP Morgan into pieces (to protect against systemic failure). Others note that the bill does nothing to help those in foreclosure situations or address complex derivatives, the likes of which brought down AIG. Three amendments to address derivative oversight were voted down.
Two members of the Progressive Caucus — Reps. Dennis Kucinich (D-Ohio) and Marcy Kaptur (D-Ohio) — also voted against the final legislation because they were concerned that it didn’t go far enough to help consumers.
Final Thoughts
It is very clear that financial institutions and their lobbyists have had a heavy hand in reshaping the WSRCPA to be a shadow of its former self. Sadly, it’s unclear whether the consumers and taxpayers (whom the bill was originally created for) will be better off should the bill pass the Senate in early 2010.
Perhaps the reform that we need most would come in the form of the regulation of lobbyist activity and campaign contributions. The Center for Responsive Politics found that members of the House who voted against the measure collected 70 percent more from commercial banks since 1989, on average, than those supported it. And they raised an average of 50 percent more from credit and finance companies than the bill’s supporters, the CRP found.
I vote for reforming the reformers.
For more of GE Miller’s writing, visit personal finance blog
20somethingfinance.com.
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7 Comments so far
leave a commentKindly spare us this regurgitation of the political talking ponts of the Obama administration and the left wing of the Democratic party. It is unsuitable for a general-interest finance web site and will turn off the part of your readership which is beyond Mr. Miller’s juvenile politics and the sophomoric understanding of finance he displays.
Awesome!!!
Good grief… I figured people who were so closely dialed in to the financial world would realize that even more government involvement in this mess would be just like poison. THE GOVERNMENT AND IT’S INVOLVEMENT IN THE WORLD OF BANKING AND FINANCE VIA THE FED IS PRECISELY THE REASON WE ARE IN THIS MESS!! Their unwillingness to let big banks fail when they should have has done nothing except speed us along the road to financial ruin. We will not make it to the end of 2010 without a catastrophic event taking place in our financial system, and you can thank the government for it. Sound fiscal policy is nowhere to be seen in this mess.
I think that if the bill does what it is supposed to do, then it is a good thing. Most people don’t understand how money works, let alone mortgages. The question is, how much will it protect consumers in practice.
The other side of the argument is that it controls companies that do not need to be controlled, at least in a capitalistic society. What does “unfair credit card rate increase” mean? Why is it unfair? Unfair to who? The credit card companies would argue that they are perfectly fair because they customer is made aware of the fact that the company can raise rates.
So the fine line that Obama needs to walk is to protect consumers without infringing on the company’s right to make money in a legitimate way. Definitely not clear cut.
I’d prefer if the politics were kept out — especially since it’s obvious that those writing about it are overwhelmingly liberal. Not everybody feels the same way about government regulation. Please stick to the awesome graphs!
Obama’s primary goal is to get the USA to a communist form of government as soon as possible. A communist government is where the playing field is leveled. All are equally poor.
Health Care Reform at its finest. The FEP standards for health insurance coverage go against what what just passed by the president. The FEP Programs side step every regulation passed. They set their own rules as do so many other employers. Employees are left with large gaps in their coverage. They often pay for coverage and receive minimal benefits because the Federal Plans can do this. I believe they should be held to the same standards as any other employer and insurance carrier. I am tired of being cheated as a consumer because these large self insured companies make their own rule, none of which follow any of the mandates that were passed by the President and Congress. The US Government FEP insurance needs to set the standard for the industry not defy the standards and make their own standards. If you have two coverage, even three policies you are paying mega bucks for what exactly when those plans do not want to pay their share? My daughter has 3 policies and I still have outstanding bills to pay. That tells me someone is making big money and cheating the average consumer out of what should be full coverage. I am appalled that the FEP Health Insurance coverage would be one of the policies that neglect to pay for claims when they are secondary yet they continue to collect a full premiums as the secondary carrier. Why do carriers collect full premiums when they are secondary and they know their payment responsibility is minimal?