Credit cards could be simpler under new consumer agency

07.01.09
By Sarah Beldo

On Tuesday, President Barack Obama set plans in motion to create a new consumer agency that would watch over products like credit cards and mortgages.

The administration sent a blueprint for the Consumer Financial Protection Agency to Congress in a move that is being hailed by consumer advocates and decried by many banks.

Currently, the responsibility for consumer protection is spread across different regulators – but the new plan would consolidate this duty.

According to Obama’s proposal, the agency would be tasked with regulating the fees, terms and interest rates connected to a number of consumer products. One of its primary jobs would be overseeing the credit card legislation passed by Congress earlier this year.

It would also seek to encourage the creation of so-called "plain vanilla" financial products that do not come with complicated rules, limits and teaser rates.

"The driver behind this will be the plain vanilla products," Elizabeth Warren, chair of the Congressional Oversight Panel, told Reuters in an interview.

She also dismissed the idea – suggested by banks and other opponents – that the creation of a consumer protection agency would increase the cost of financial products and limit choice.

In fact, Warren predicted that the price of using credit cards and other products could even decrease, telling Reuters that "with straightforward products and simple disclosures, the markets for these products will change dramatically.”

Obama has suggested the aim of agency would be to prevent financial institutions from carrying out deceptive practices and assist Americans in making informed decisions. New homebuyers trying to better understand the terms and features of a home loan are one segment of the population that could benefit from a consolidated consumer protection effort.

Some lawmakers have blamed the current economic crisis on lax enforcement of consumer protection rules and a lack of strong regulation.

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Credit cards and mortgages would be overseen by the new consumer protection agency