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Consumer Financial Protection Agency or Sense on Cents

Posted by Larry Doyle on June 17, 2009 9:27 PM |

A large initiative embedded in President Obama’s financial reforms is the launching of the Consumer Financial Protection Agency. Why does President Obama feel it is necessary to launch such an agency? For the very same reason I was compelled to launch Sense on Cents earlier this year.

The Wall Street Journal provides insights on this agency in writing, A New Consumer Agency With Enforcement Teeth:

President Barack Obama’s proposed regulatory revamp includes sweeping changes to help consumers make informed decisions about financial products, save for retirement and get better investment advice.

A centerpiece is the creation of a Consumer Financial Protection Agency with authority to write and enforce rules across a slew of financial products.

Firms would also have to offer “plain vanilla” versions of products — such as a mortgage that does not include prepayment penalties and has predictable payments — along with their other offerings. The goal is to make it easier for consumers to shop around without worrying about hidden fees.

“The new agency is about making consumer credit markets work,” said Elizabeth Warren, chairman of the Congressional Oversight Panel, which oversees the government’s Troubled Assets Relief Program. Ms. Warren had proposed the idea of a financial-products safety commission in an article published in the journal Democracy in 2007.

“It’s not possible for a customer to compare three or four credit-card products and determine which one is the cheapest and which one poses the least risk,” Ms. Warren said. “This agency is about changing that.”

Consolidating the job of consumer oversight into one agency could help resolve consumer disputes more quickly and effectively.

Clearly the financial industry has not had the interests of consumers at heart. Why are so many investors dissatisfied with their banks, brokers, and financial planners? The financial companies and individuals did not protect the customers. More often than not, brokers and bankers themselves were ill equipped to understand the dynamics at work within products, the market, or the economy.

Very little “sense on cents” existed in the financial industry. Barack wants to change that. I commend him. The WSJ offers more:

Not only would the agency have the authority to write rules and require better disclosure, but it would also have the teeth to enforce its mandates. The agency, for example, would be able to ban financial products it deems overly risky.

“If you’re going to pitch more complex, dangerous products, you face higher potential fines and higher regulatory scrutiny,” said Travis Plunkett, legislative director of the Consumer Federation of America.

Firms may have to put “warning labels” on their alternative products and require applicants to fill out financial-experience questionnaires, according to the administration.

“This is a game changer,” said Ed Mierzwinski of U.S. Public Interest Research Group, a consumer watchdog in Washington, D.C. “This is to me as big as creating deposit insurance in the 1930s.”

The proposal also aims to resolve a long-simmering debate over how brokers and investment advisers are regulated by establishing a fiduciary duty for broker-dealers offering investment advice.

The thought process behind the launching of this agency is totally consistent with my launching Sense on Cents. As I wrote on February 27th, The Case for Sense on Cents:

Welcome to Sense on Cents!!

Why am I so enthused about the potential for this site? I could write at length in answering that question, but in short I firmly believe the “product” delivered here is in very strong demand and very short supply. Collectively as we navigate the economic landscape we will learn, share, and become more comfortable with the economy, the markets, and global finance. While the economy dominates our news currently, where can one go to make sense of it? Welcome to Sense on Cents!

Sense on Cents is truly a reflection of my professional instincts and personal interests.  I sincerely believe this site can elevate the level of financial literacy, economic knowledge, and market insights for those who come here. Additionally, I am pleased to provide a wealth of information on career planning, global perspectives, financial primers, and meaningful literature.

It would seem that Barack and I agree . . . America needs more Sense on Cents!!


  • Well, financial companies looked at easy profits even at the expense of their customers. It’s just plain greed. They failed to see that when the customer loses out and can’t pay back their loans, the financial companies end up not earning at all. Hence, the economic bubble simply burst.

  • JP

    With the federal gov’t looking to take on a larger role in education policy, isn’t this the ideal time to introduce some sort of basic personal finance curriculum into the school system, at least at the high school level? Some basic financial literacy could go a long way toward creating a more transparent lending system. Has anyone seen / heard / read anything about a program like this?

  • Mike

    It’s a shame, but most Americans are too lazy to learn and are very easily distracted by other things. Everyone hates their bank because they’re all raising credit card interest rates even though we give them TARP money.

    TARP may have been a good idea if it facilitated lending but it was nothing more than a tightened leash around the necks of banks, and why wouldn’t they want to get out of it as soon as possible?

    The only hope I see for America in the future is to become a major exporting power. (LOL!) The extent of our problems due to our rapid rise in debt/GDP ratio can be terrible in the next 30 to 40 years. Not only will BRICs become the new superpowers but we may even see a division of regions, or absolute worse a civil war… maybe I’m getting ahead of myself.

    As far as Americans becoming smarter financially, good luck. Why watch Bloomberg when you’ve got American Idol?

    Also, I’ve been following this blog for the better part of 6 months and it has been the best economic resource on the internet. LD, I can’t thank you enough for the insight and for the detailed paintings of the ‘bigger pictures’ in all this mess. Cheers.


  • First things first, thanks for the praise. I am glad you enjoy and appreciate my writing.

    On the other topic, nothing changes as rapidly as we would like. While many parts of our culture are severely lacking on important financial topics, hopefully future generations will get up the curve.

    If Sense on Cents can help even a little in that process, mission accomplished.

    Thanks again for the kind words.

  • Meagan

    How does the govt think they can manage other peoples finances when people in congress can’t mangage their own checkbook… I think I prefer putting trust in my financial institution before the govt any day. When are people going to wake up and realize the govt wants control of everything in our lives. We might as well kiss our “freedom” goodbye.

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