By Sally Greenberg, NCL Executive Director
President Obama is hailing the deal reached between Senate and House negotiators and passage of the regulatory reform bill. Mr. Obama called it the “toughest financial reform since the ones we created in the aftermath of the Great Depression.” And he plans to sign the bill before the Fourth of July recess. Our consumer colleagues were largely the driving force behind this legislation, though the financial industry won some important victories. Those groups include the Consumer Federation of America, National Consumer Law Center, U.S. PIRG, and several others. With Harvard Law Professor Elizabeth Warren providing the inspiration for regulating the “gotchas” consumers face in fees and charges buried in the fine print of financial documents, our colleagues led the drive for a consumer protection agency to oversee the financial industry.
Under this bill, we will have a new regulator to oversee and enforce fair rules on checking accounts, mortgages, and payday loans, while preserving the power of state regulators to enforce their own consumer protection laws. That’s important because federal legislation too often preempts state consumer protection laws from being enforced in favor of a federal law – a loss of enforcement power that consumer advocates fight every time.
Lenders will have to make disclosures in complicated legal documents much easier to understand and cannot impose fees – late fees, prepayment fees, willy-nilly.
The bill also contains important protections for investors, calling on banks and others that issue securities to have limit their risks and to have some skin in the game themselves. I particularly liked that Senator Blanche Lincoln (D-AK) tried hard to regulate the derivatives industry but was forced to scale back her original amendment; nevertheless, the industry will now be required to segregate their dealings only in the riskiest categories of derivatives, including the highly structured products like credit default swaps, which sound more complicated than they are (betting that people will default on loans or mortgages). People made millions betting the housing market would implode, and it was in their interest to see it implode.
This is a far-from-perfect bill, but we should take our hats off to all the consumer advocates that led the fight for the bill and Chairman Barney Frank (D-MA) in the House and Chairman Chris Dodd (D-CT) in the Senate for getting the bill over the finish line.