Battle Has Begun over Proposed Consumer-Protection Rules
WASHINGTON u Health-care reform has drawn most of the attention on Capitol Hill lately, but for homebuyers, sellers and mortgage applicants the legislative ballgame will really get underway in September when Congress begins serious work on the proposed Consumer Financial Protection Agency.
Legislation creating the new agency already is pending in the House, pushed by Financial Services Committee Chairman Rep. Barney Frank, a Democrat from Massachusetts who is its principal author. The Obama administration had outlined a similar plan at the end of June and considers passage of a bill a top priority.
Why should you care? What might the new agency do for you u or to you? HereAEs a quick overview:
To begin with, you should be aware that the agencyAEs powers and oversight would extend far beyond mortgages and real estate u into all credit cards, debit cards, consumer loans, payday loans, credit reporting agencies, debt collection, stored-value cards, and even investment advisory and financial advisory services, to name only part of the list.
It would have the authority to alter long-common practices that nettle consumers, such as mandatory arbitration clauses in the fine print of contracts that automatically send all business-consumer disputes to arbitrators rather than to courts. The new agency could ban or limit such clauses in specific products if they are shown to tilt against consumersAE interests.
The CFPA would write the user-safety rules for virtually all consumer financial products, and would have the legal firepower to levy huge fines u tens of thousands of dollars a day per violation in some cases u and prosecute lenders, brokers and others who break the rules.
The agency would be the dominant federal consumer protector in all home real estate settlements. It would regulate "affiliated" title, escrow and financing businesses connected with realty firms and builders. It would oversee equal credit opportunity and fair housing, and would set standards for all mortgage offerings, whether from the biggest national banks or the smallest local brokers. Generally it wouldnAEt seek outright bans on mortgage products that carry elevated risks u interest-only loans, for instance u but would require that lenders restrict such mortgages to well-informed applicants who can document that they understand the risks and afford the payments.
Within its first year, the agency would be tasked with creating consumer-friendly, uniform disclosures for all home purchase and financing transactions, starting with a combined "good-faith estimates" and truth in lending statement. …