Plan Sent to Congress to Boost Consumer Financial Protections Praised by Columbia Law School Experts

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New York, June 30, 2009 -- An Obama administration proposal to consolidate consumer-protection powers over banks and mortgage brokers is a reform welcomed by Columbia Law School experts who said such a measure is overdue.
The legislation to create the Consumer Financial Protection Agency was sent to Congress Tuesday. It is designed to put under one roof consumer-protection powers now spread over several agencies, such as the Federal Reserve, and provide consumers with a greater ability to make informed decisions about financial products and protect them from abuses.
House Financial Services Committee Chairman Barney Frank, D-Mass., has said he hopes to clear the legislation through his committee by the end of July. Banks have vowed to fight the measure, but Harvey J. Goldschmid, Dwight Professor of Law, doubted they would hold much sway.
“The banks don’t hold the leverage,” he said, and it’s the (financial reform) the president is identified with.”
John C. Coffee, Adolf A. Berle Professor of Law, said there are existing federal consumer protections for products like mortgages and credit cards, but for too long many agencies have been “less regulators and more cheerleaders for the banks.”
The bill written by the Treasury Department details the agency’s power to issue rules about such services and products as mortgages, leasing property, title insurance, credit-card disclosure statements, and credit reporting bureaus.
The measure also requires mortgage brokers to find the best deals for potential home purchasers. Currently, brokers have no fiduciary responsibility to homebuyers.
Another provision ensures that any state laws would preempt rules adopted by the agency if the state law provides greater consumer protections. It would also allow state attorneys general to sue for violations of new federal rules, not just state regulations.
“It’s a huge deal,” said James Tierney, Director of the National State Attorneys General Program at Columbia Law School.
Coffee said the measure would give states “unprecedented powers to enforce broad consumer protections against national banks.”
Coffee agrees, but said even if the measure becomes law, financial firms will not go quietly.
“The purpose of the agency is to regulate any abusive and unfair consumer practices,” Coffee said. “And how far that would go would involve rulemaking and possibly judicial challenges.”
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