Magazine article Mortgage Banking

House Passes Sweeping Financial Reform Bill

Magazine article Mortgage Banking

House Passes Sweeping Financial Reform Bill

Article excerpt

By a vote of 223-202, the House of Representatives passed The Wall Street Reform and Consumer Protection Act (H.R. 4173). The bill was a sweeping response to the breakdown in the financial markets that swept the nation into a deep and lingering recession.

The measure, among other things, would create a new agency called the Consumer Financial Protection Agency (CFPA), which would have power to ban deceptive industry practices such as teaser rates; would have authority to make sure contracts for credit cards and mortgages "are fair and comprehensible"; and would have new oversight powers over mortgage originators and payday lenders, according to a fact sheet on the legislation.

In a document the House Financial Services Committee released on the bill titled "Myths vs. Facts," proponents of the legislation seek to rebut the charge that the CFPA would add additional layers of government bureaucracy that are unnecessary. The document states, "The new agency will consolidate and streamline enforcement of roughly 20 laws currently overseen by seven different agencies."

The document goes on to state, "This new agency is necessary as existing regulators failed to stop abusive lending practices before these practices harmed millions of consumers and ultimately the entire economy. Right now, consumer protection is a minor and sometimes-ignored responsibility for a number of agencies, but not top priority for any one of them. Agencies have ignored their consumer-protection mandates in the past, and former Federal Reserve Chairman Alan Greenspan never implemented a law passed in 1994 to regulate subprime lending."

The legislation is broad in scope and touches on several distinct financial services arenas. In addition to creating the CFPA, it would create a new interagency oversight council (the Financial Stability Council) to identify and regulate financial firms that are so large or risky that their collapse would put the financial system at risk. The legislation also establishes an orderly process for dismantling large failing financial institutions such as AIG or Lehman Brothers, according to the fact sheet.

The bill would also give shareholders a say on executive compensation, and enables regulators to ban "inappropriate or imprudently risky compensation practices." The legislation strengthens the Securities and Exchange Commission's (SEC's) powers to provide enhanced investor protections, as well as regulates for the first time over-the-counter derivatives. The bill also creates a new Federal Insurance Office to monitor all aspects of the insurance industry. …

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