WASHINGTON — President Barack Obama will today propose creating a new body to regulate financial products such as mortgages and credit cards, with an eye toward protecting consumers and ordinary investors. It's a radical shift in approach and a tacit acknowledgment of federal failure.
Obama will unveil the broadest proposed revamp of financial regulations since the Great Depression, addressing many of the shortcomings that left the U.S. financial system on the brink of collapse.
"We have to make sure that we've got an updated regulatory system that hasn't been significantly changed since the 1930s to deal with enormous global capital flows and a range of new instruments and risk-taking that has been very dangerous for the American people," the president said Tuesday in the Rose Garden.
Obama's proposal to create an independent and powerful Consumer Financial Product Safety Commission is most central to the American consumer.
Under the president's plan, the Federal Reserve and other bank regulators would lose their oversight over mortgages, credit cards and other financial products that are sold to consumers, and this power would reside instead with a newly created regulator.
"Let's face it, the (Federal Reserve Board) has had the power to engage in aggressive consumer regulation at least since 1994," said Harvard law professor Elizabeth Warren, who chairs the Congressional Oversight Panel, which oversees how Wall Street bailout money is being spent. "They clearly had the power to stop the mortgage crisis before it started. And what did they do with that power? Nothing."
Rep. Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said while Fed chairman Ben Bernanke has done well on consumer finance issues, his predecessor Alan Greenspan's failure to enforce laws on deceptive mortgage practices led to weak standards and the proliferation of mortgages issued with little or no review of borrowers' ability to pay.
For those who have been saddled with arbitrary rate increases on credit cards, predatory lending in mortgages or onerous terms on tax-deferred annuities, the agency could be a breakthrough. But it also could end up limiting consumer options, said Bill Himpler, a trade association official.