New Mortgage Consumer Protections

President Obama has proposed a new regulatory agency that would oversee a wide range of consumer financial products including credit cards and mortgages which critics say have become too complex and have played a significant role in the present economic crisis. In addition to the new agency, the Obama administration proposes stiffer regulations for financial institutions that are considered too big to fail.

The new regulatory agency, the Consumer Financial Protection Agency, is purposed to police lenders and protect consumers in credit, savings and other banking transactions. The Consumer Financial Protection Agency and a newly empowered Federal Reserve are to be two of the central components in a broad overhaul of the financial regulatory system. Obama also plans to transfer some banking authority that now rests with the Fed and the Treasury Department to the new Consumer Financial Protection Agency. “There is going to be streamlining, consolidation and additional overlap so that you don’t find people falling through the gaps, whether it’s the consumer protection side, the investor protection side, the systemic risk that we need to make sure is avoided,” Obama said Tuesday.

The decision to create the new consumer agency comes amid complaints that mortgage lenders and credit card companies have taken advantage of unsuspecting customers and saddled them with debt. The predatory practices and lax consumer protections contributed to the financial crisis. It is hoped that the new agency will assist in providing consumers the protection and the representation they deserve.

The new agency could write rules, reform mortgage laws, examine financial institutions’ practices, enforce compliance through penalties, ban unfair practices and require that companies clearly inform consumers of costs, penalties and risks associated with their credit products. It also would allow states to pass laws that are stricter than federal standards.

In addition, the newly proposed regulations require banks and other financial institutions to offer a basic, “plain vanilla” mortgage product with straightforward terms, such as a 30-year, fixed-rate mortgage loan. Although, consumers could opt for more complicated products,  complicated products would be subject to more stringent rules and disclosures than they are now.

“Tremendous problems could have been avoided had such an agency weighed in against some of the abusive practices that Congress acted on only recently,” said Travis Plunkett, legislative director of the Consumer Federation of America, citing excessive bank fees and misleading practices.

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