President Barack Obama has proposed a regulatory reform of the financial system. With Congress already embroiled with health care, he as asked lawmakers to pass the proposals as speedily as possible. Some of the key points of the proposed regulatory changes include the following:
- The Federal Reserve will receive power to supervise any company deemed too big to fail — not just financial companies.
- The Federal Reserve, along with other disparate regulatory bodies, will no longer be in charge of consumer financial regulation. That job will go to a newly created Consumer Financial Protection Agency.
- Credit default swaps and derivatives will be regulated now.
- Hedge funds will have to register with the SEC.
For most of us, the main impact will come from the creation of the new consumer protection agency. This agency will have a great deal of authority over financial institutions and the products and services they provide. Indeed, credit cards, mortgages, savings and other issues will be affected by this agency — assuming it is actually created. Theoretically, such an agency could get rid of prepayment penalties on loans, require lenders to verify that borrowers can afford their loans, change rules about overdraft protection loans and maybe even impose interest rate caps on certain types of loans.
It will be interesting to see how these new regulations play out, and discover whether they are actually effective in limiting exploitation of consumers.