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Posts Tagged ‘consumer finance protection’

No Place for Sy Syms on Wall Street

Posted by Larry Doyle on June 30th, 2009 12:09 PM |

Sy Syms, a retail maven in the New York market, is known far and wide for coining the slogan, “An Educated Consumer Is Our Best Customer.” Well, that may have worked for Sy in retail but there would be no place for Sy on Wall Street. Why?

An educated customer, whether institutional or retail, is able to more fully understand products, risk, and pricing. In the process, profit margins get squeezed. The Wall Street Journal highlights this point in reporting Plain-Vanilla Financing Could Melt Bank Profits:

The Obama administration’s plan to protect consumers from bad deals on mortgages, credit cards and other financial products is an attempt to take the industry back in time and could put a dent in bank profits.

The plain-vanilla guidelines are part of an ambitious effort by the Obama administration to force banks to offer mortgages and credit cards with simpler standard terms.

“That was a market that used to be pretty strongly anchored on plain-vanilla products,” said Michael Barr, the Treasury Department’s assistant secretary for financial institutions.

The coming guidelines, part of a broader proposed overhaul of the financial-services sector, are likely to start with mortgages and eventually cover credit cards, car loans, payday loans and bank-overdraft programs.

A plain-vanilla credit card, for example, isn’t likely to have a lower introductory “teaser” rate. Card issuers wouldn’t be allowed to “change the rules of the game” on consumers, as in cases where a 0% rate is applied to only part of their balances.

The complex loans of recent years didn’t just confuse consumers. The bankers themselves ultimately misjudged whether customers would repay them. And the resulting credit crunch has forced lenders to drop many of their most risky products.

Fairly self-explanatory why Wall Street has little interest in going down that path. In fact, rest assured that the Wall Street lobbying machine is hard at work right now to water down the Consumer Financial Literacy Program.

If there is no seat for Sy Syms on Wall Street, rest assured they’d roll out the red carpet for George Hull and David Hannum . Who are George and David, you ask? They perpetrated a hoax, known as the The Cardiff Giant, back in the mid 1800s.  This hoax led to the coining of a phrase commonly associated with P.T. Barnum, and openly embraced on Wall Street, that is “there’s a sucker born every minute.”

For those interested in this piece of history: P.T. Barnum Never Did Say, “There’s a Sucker Born Every Minute.”

For those interested in increasing financial literacy while navigating the economic landscape, keep reading Sense on Cents.


Updated News 1:30pm 6-30-09
Obama Unveils Consumer Protection Agency Legislation

Consumer Financial Protection Agency or Sense on Cents

Posted by Larry Doyle on June 17th, 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. (more…)

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