American consumers may finally have a reason to smile soon, when President Obama proposes the creation of the Consumer Financial Protection Agency tomorrow. The new watchdog agency will be responsible for protecting consumers from what Jennifer Liberto, CNNMoney, describes as “deceptive or dangerous mortgages, credit cards and other financial products.”
In the last year, you’ve probably experienced some anxiety over some new or unfair practice from the finance industry. It might have been your credit card. Millions of Americans learned of hidden fees, were subjected to reduced limits, new account fees or increased monthly payments.
Perhaps you took advantage of one of the low-interest credit card transfer offers. Later, after you made additional purchases at a higher rate, you may have realized that your payments went toward the low-interest rate charges first. Or maybe you were one of the millions who took out an adjustable rate mortgage (ARM) and were hit hard with a new rate, or ended up with another mortgage product that was too costly.
Years of budget cuts to consumer protection groups and a laissez-faire belief in less government regulation has led to many businesses, particularly in the financial services sector, taking advantage of consumers. As Treasury Secretary Timothy F. Geithner and Director of the National Economic Council Lawrence Summers have noted:
Our framework for financial regulation is riddled with gaps, weaknesses and jurisdictional overlaps, and suffers from an outdated conception of financial risk. In recent years, the pace of innovation in the financial sector has outstripped the pace of regulatory modernization, leaving entire markets and market participants largely unregulated.
The Consumer Finance Protection Agency is just one of several proposals to rein in the finance industry. This proposal comes on the heels of last month’s budget increase to the Consumer Product Safety Commission (CPSC). Obama’s budget proposal included a 71% increase to the CPSC.
Tomorrow, Obama will unveil a series of proposals aimed at improving the regulation of the financial services sector.