Recently in Consumer Finance Protection Agency Category

by Vicki Morwitz and Robert Whitelaw

The Senate today approved the Dodd-Frank Wall Street Reform and Consumer Protection Act. Soon President Obama will sign it, and the Act will become law. One notable aspect of this sweeping financial regulation is the creation of a new Bureau of Consumer Financial Protection (BCFP) as an independent bureau within the Federal Reserve System. The BCFP is charged with aiding consumers in understanding and using relevant information; protecting them from abuse, deception, and fraud; ensuring that disclosures for financial products are easy to understand; conducting research; and providing financial literacy education. But will the new law accomplish these goals? And who will be the winners and losers under the new law?

On Thursday the Senate passed its version of the financial reform bill, and the reconciliation process with the previously passed House bill will now begin. What are the implications for consumer protection? The similarities between the two bills in the area of consumer protection and more notable than their differences, but there are some distinctions to keep in mind and some troubling issues common to both bills. Consumer protection is a worthy goal, especially given some of the documented abuses leading up to and during the financial crisis, but bad regulation may be worse than under-regulation.

You might think that the Senate has enough to do attempting to save the country from another financial crisis. Measuring and regulating systemic risk, orderly liquidation of failing financial institutions, Freddie and Fannie, rating agencies--the list of critical issues is long and the problems are complex. However, significant regulatory reform is apparently not enough to keep our diligent Senators busy. A couple of weeks ago Senator Tom Harkin took the time out to propose capping ATM fees, and this past week the Senate approved an amendment put forward by Senator Richard Durbin to reduce the "swipe fees" that banks and other companies charge on credit and debit card transactions.

Apparently some people in the Senate think that price controls are the appropriate tool for consumer protection. Ideas have been floated in the past to regulate interest rates on payday loans and credit card fees, and the latest target is ATM fees. Senator Tom Harkin seems to believe that restricting ATM fees to "a reasonable upper limit of 50 cents per transaction" will actually benefit consumers. Unfortunately, the logic underlying such a proposal shows a fundamental misunderstanding of, or perhaps disregard for, economics.

by Vicki Morwitz and Robert Whitelaw

This spring Senator Dodd unveiled a Senate bill claiming to place the protection of consumers at the top of the list. Consumers--homebuyers, taxpayers, the everyman investor--were the big losers in the greatest financial crisis in recent history. Now, with a bill moving swiftly, perhaps, through the Senate, victory may be at hand. Or is it?