Thursday, July 22, 2010

Bureau of Consumer Financial Protection

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The law gives the government authority to take over and liquidate failing financial firms, injects transparency into transactions involving financial instruments called derivatives and will restrict banks from making risky bets with their own capital. It directs agencies to write hundreds of new rules...

Mr. Obama's choice, expected soon, will be a momentous one because the first director will have great influence over agency's direction, wielding a roughly $500 million annual budget that doesn't require approval from Congress.

The new consumer regulator will be funded by the Federal Reserve and have independent powers to write and enforce rules governing how loans and other financial products are offered, bearing on everything from the type of mortgages people can get to the fees on their credit cards.

The agency will be able to enforce its rules against any bank with more than $10 billion of assets, as well as all large mortgage lenders, student-loan companies and payday-loan firms. It will have an army of examiners to probe these companies' practices. Small banks will have to follow the new rules written by the agency but they will be examined by other federal regulators.

The bureau's policies and rules could be overturned by other regulators only if they "would put the safety and soundness of the U.S. banking system or the stability of the financial system of the U.S. at risk."...

Supporters said the government needed new powers to protect Americans from abusive financial practices such as hidden fees in the fine print, which they argue helped cause the financial crisis. Opponents said the agency was a sign of "nanny state" that treats regulators as better equipped than citizens to make decisions...

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My thoughts: What could go wrong with a 2,000 bill with "barely understandable fine print"?

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