Smart Borrower Blog

Obama Unveils Plans for More Lending Regulation

In order to make sure all financial industries are behaving well, President Obama announced plans today for a new regulatory commission – the Consumer Financial Protection Agency or CFPA. This body would be in charge of overseeing the practices of mortgage lenders, credit card companies, and insurance and investment banking corporations.

Here’s why Obama thinks this is a good idea:

 "This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want — and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you."

Here’s why consumer advocate groups are happy:

"By setting up a single consumer financial protection agency, the administration is ensuring that the same rules will apply to similar products across all financial institutions," said Kathleen Day, spokesperson for the Center for Responsible Lending, as quoted in a CNN article.

Here’s why others, like the American Bankers Association are opposed to this commission:

It would force mortgage lenders to offer specific products, restrict them from including prepayment penalties,   and change the way brokers are paid – from one big payment at closing, to spread out payments over time based on how well each home loan does.  
In a nut shell, the new agency would have a lot more power and authority to tell lending institutions how to run their businesses. Good or bad? Depends on whether you think protecting consumers from any risk is more important than letting markets be free to find the most effective and profitable business plans.