New consumer agency would require banks to offer 'plain vanilla' mortgages
American consumers have fallen victim to one financial scandal after another in the past decade, from accounting fraud at Enron to illegal late trading by mutual funds to the subprime mortgage meltdown.
President Obama hopes to put the brakes on that trend with a series of regulatory reforms his administration says will guard the nation’s financial system against its own excess.
The centerpiece of the package is the creation of a new agency, and there also are proposals to protect people who have mortgages or use credit cards.
What’s being created and why?
The Consumer Financial Protection Agency, if approved by Congress, will have broad authority to protect consumers of credit, savings, payment, and other consumer financial products and services. It would be independent of agencies that now share those oversight duties and take away some power from some, most notably the Federal Reserve.
What exactly would the new agency be able to do?
It could write rules, reform mortgage laws, examine financial institutions’ practices, enforce compliance through penalties, ban unfair practices, and require that companies be “clear and conspicuous’’ in informing consumers of costs, penalties and risks.
One signal that administration officials are determined not to let this be just another layer of bureaucracy and complexity: their use of the term “plain vanilla.’’ The agency would require banks and other financial institutions to offer a basic, “plain vanilla’’ mortgage product with straightforward terms.
Will these reforms help people stay out of trouble with their mortgages?
They should help avoid future troubles. It would set guidelines for mortgages, and certain subprime mortgages clearly would be banned. Mortgage companies and banks would not be able to issue mortgages “or other credit products’’ that they knew consumers would not be able to pay back.
What if I’m already facing foreclosure? Is this going to help me?
Perhaps not immediately. But the summary being circulated by administration officials makes it sound as if the new agency would have the authority to order institutions to negotiate fairly with consumers facing foreclosure.
Will this stop credit card companies from raising rates and fees?
It won’t automatically ban all rate increases, but the new agency could have the power to set a maximum interest rate and maximum fees.
What about all the fine print in credit card statements - is that going to go away?
It won’t go away entirely. But the insistence on transparency and understandable communications should improve things.
Dave Carpenter writes for the Associated Press. 
