Legal, Regulatory, and Privacy Issues

How a ‘financial protection agency’ affects cardholders


This table summarizes how credit cardholders would be affected by President Obama’s sweeping financial reform proposal.

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UPDATE:  Wall Street Reform bill taking shape for consumers

Under a sweeping proposal to reform financial institutions, put forward by President Obama on June 17, 2009, a new agency would have broad powers to monitor the credit card industry, adopt new rules tailored to new products, set standards for the best and worst practices, enforce or revamp existing credit laws and act as a clearinghouse for consumer complaints regardless of whether credit cards are issued by banks or other companies.

Here’s a a quick look at what the proposed new Consumer Financial Protection Agency might do to address current problems with credit cards and other financial products. (See full story: Proposed new agency would oversee credit card issuers)

What the proposed federal Consumer Financial Protection Agency
would mean to credit cardholders
Current problem or issueNew agency’s possible solution
Credit card disclosures are hard to read and difficult to understand.Require that all disclosures are clear, simple and concise. Test disclosures regularly to see if they are clear. Set a standard that all communication must be reasonable.
Users don’t know or understand the true cost of borrowing with credit cards.Require credit card issuers to provide calculators that give payoff terms under different circumstances (i.e., only making minimum payments or paying off in only a year).
Credit card terms are too complex.Require issuers to offer “plain vanilla” credit cards in addition to other, more complex products for consumers who want basic cards.
Consumers lack financial education to make good decisions about the right credit card.Take a lead role in educating consumers about all credit matters. Review and streamline existing financial literacy programs.
Mandatory binding arbitration clauses in typical credit card contracts limit consumers’ ability to successfully challenge issuers when disputes arise.Review mandatory arbitration clauses in consumer financial contracts to assess fairness. If needed, develop standards for fair dispute resolution or ban mandatory arbitration clauses in certain products (such as mortgages).
Issuers automatically enroll debit card users in overdraft protection plans that charge fees when consumers don’t have enough money in their accounts to cover their purchases.Require issuers to develop point-of-sale technology that alerts consumers at the cash register or checkout when they are about to overdraw their accounts. Also may provide the option of opting out of the fee.
Filing a complaint about a credit card issuer may mean contacting one of several federal agencies, depending on the type of charter the bank holds.All consumer complaints about financial products — whether issued by banks or other companies — are received by the Consumer Financial Protection Agency.
Banks can easily change their charters and shop around for regulators that don’t actively enforce consumer laws.All credit card issuers are subject to oversight of products and services from the new agency.
The overburdened Federal Trade Commission only launches investigations of debt collectors with large numbers of complaints against them.New agency has jurisdiction over debt collectors and debt buyers — thus relieving the overburdened FTC.
Existing debt collection, lending, mortgage and credit laws don’t cover new financial products that are introduced by lenders.Review existing laws at least every three years and tweak them if needed. Tailor rules to specific industry practices.
Bank regulators are not staffed to handle enforcement of consumer laws because they are focused on supervising bank operations.Put responsibility for overseeing consumer financial services and products in the new agency.
Source:  President Obama’s proposal to create a new Consumer Financial Protection Agency

See related:  Wall Street Reform bill taking shape for consumers, Proposed new agency would oversee credit card issuers, A comprehensive, interactive look at the new credit card legislation, Obama signs broad credit card reform into law, Federal banking regulators finalize sweeping new credit card rules

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