By Mark Huffman
ConsumerAffairs.com
March 16, 2010 Senate Banking Committee Chairman Sen. Christopher Dodd (D-CT) has unveiled his long-awaited financial reform bill, which walks a tightrope between the wishes of Wall Street and consumer groups.
The measure drew immediate fire from Republicans, who oppose its new regulation of the financial sector. Some Democrats have also expressed their disappointment, saying it doesn't do enough to protect consumers.
Perhaps of most relevance to consumers, the bill would establish a Consumer Financial Protection Bureau. The agency would be led by an independent director but it would be an agency of the Federal Reserve. Many consumer advocates wanted the bureau to be a stand-alone agency, to ensure its independence.
Despite the compromise, Dodd's bill would empower the bureau to independently write rules for consumer protection. The rules would cover banks and credit unions with less than $10 billion in assets and all mortgage-related businesses. Included under that umbrella would be lenders, servicers, mortgage brokers, payday lenders, debt collectors, consumer reporting agencies, and foreclosure prevention operators.
Under that distinction, the Fed would continue to oversee the large national banks, whose assets exceed the $10 billion asset benchmark.
The bureau would also establish an Office of Financial Literacy charged with educating the public about financial matters and a complaint hot line so consumers will have a single point to report problems with financial institutions.
The Dodd bill would also establish a Financial Stability Oversight Council, chaired by the Treasury secretary and made up of regulators representing the Federal Reserve Board, the Securities and Exchange Commission, Office of Comptroller of the Currency, The Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Commodity Futures Trading Commission and an independent member. The council's main responsibility would be to identify and respond to emerging risks throughout the financial system.
Volker Rule
The bill contains the controversial Volker Rule, designed to prevent banks and bank holding companies from engaging in proprietary trading. Until 1999 this was the law of the land, but was repealed in that year under pressure from banks, who wanted to expand their range of financial service offerings. While it made banks highly profitable in the short run, many credit the change with the economic collapse of 2008.
The bill would also give the Government Accountability Office the authority to audit any emergency lending facility set up by the Federal Reserve and will create a Vice Chairman for Supervision who would develop policy recommendations regarding supervision and regulation for the Board and will report to Congress semi-annually on supervision and regulation efforts.
While consumer groups were generally supportive of the measure, some said they thought the bill could be strengthened.
"While we approve of Chairman Dodd's rejection of efforts on the part of the banking industry to stall the legislation, we urge him and the members of his committee to use the legislative process to strengthen the measure in a number of key areas," said Tamara Draut, Vice President of Policy and Programs for the Washington policy group Demos.
'Step in the right direction'
Michael Calhoun, President of the Center for Responsible Lending, called it a step in the right direction.
"More than a year ago, taxpayers bailed out the Wall Street banks that brought our economy to the brink of collapse," Calhoun said. "Today, these same players are spending hundreds of millions of dollars to derail a financial reform package that would get our economy back on track and provide safeguards against a recurrence of this calamity. Unchecked, their actions will mean even greater losses for our economy and for taxpayers."
But Carmen Balber, Consumer Watchdog's Washington director, found the independent consumer agency in Dodd's bill not so independent.
"You can't pull an agency's teeth, and let other regulators tie its hands, and still call it an independent champion for consumers," Balber said.
Dodd, who has announced he will not seek re-election this year, urged the Senate to act quickly on the bill. He said Congress should not adjourn for the Easter recess until it has taken action.
