Obama wants shield for consumers
On the president's wish list for financial regulatory reform: A controversial agency that will monitor credit card and mortgage practices.
WASHINGTON (CNNMoney.com) -- When President Obama takes the podium on Wednesday to talk about his proposals for avoiding the next financial crisis, he is expected to unveil one idea that speaks directly to consumers and their pocketbooks.
Obama will call for the creation of a new financial watchdog agency. Its mission will be to protect consumers from deceptive or dangerous mortgages, credit cards and other financial products. The White House is calling it a "Consumer Financial Protection Agency," according to an administration official.
Proponents have compared it to the federal agency that oversees safety of toys and other products. Obama himself broached the subject on Jay Leno's "The Tonight Show" in March.
"When you buy a toaster, if it explodes in your face, there's a law that says, 'Your toasters need to be safe,' " Obama said. "When you get a credit card or you get a mortgage, there's no law on the books that says, 'If that explodes in your face, financially, somehow you're going to be protected.' "
The consumer protection idea is one of a series of legislative proposals Obama will lay out on Wednesday -- from beefing up the power of the Federal Reserve to giving regulators authority to wind down big banks.
The consumer protection plan is the only one that already has broad support among key Democrats and could gain a consensus in Congress.
And it's also the only one that so far the banking industry uniformly doesn't like.
"It's bad for the consumers," said Steve Bartlett, president of the Financial Services Roundtable, a lobbying group for banks.
Financial industry advocates object to the idea of carving out the enforcement of consumer protection from the mandates of existing regulatory agencies that oversee companies. They argue that consumer protection is intertwined with ensuring that a financial firm is on stable footing.
"Give the power for consumer protection to the agencies that have real power," Bartlett said.
On the other side, consumer advocates say they expect the proposal will tap into the populist undercurrent that swept Obama into office.
They believe the issue could be popular among lawmakers like recent legislation that clamped down on the credit card issuers. The White House got behind that legislation, which was the first major financial policy win for consumer advocates in nearly a decade.
However, consumer advocates have not won all their recent battles. Financial sector lobbyists successfully killed a measure to help consumers modify loan terms during bankruptcies, dealing a blow to consumer rights.
Consumer advocates say the consumer protection commission could be a tough battle, but they believe they have momentum.
"This is a concept everyone gets," said Travis Plunkett of the Consumer Federation of America. "Regulators failed and we need a new agency to protect consumers."
An administration official said Tuesday that the goal of the agency will be to "help ensure that consumers have the protection and the representation they deserve."
The agency would be charged with protecting consumers in the areas of credit, savings and "payment markets," the official said.
So far, both House Financial Services chief Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., have signaled support for an independent consumer protection agency. Last week, Dodd issued guidelines for such a group, saying it should have "broad regulatory and enforcement authority over credit and bank products" according to a statement.
A bill proposed by Sen. Dick Durbin, D-Ill., would create a five-person, presidentially-appointed commission to look at consumer protection issues in mortgages and credit cards. It gives the commission the power to ban abusive, unfair and "anti-consumer" practices and "restrict" financial products and practices that cross the anti-consumer line.
The panel also would have subpoena power and authority to conduct hearings into anti-consumer practices. It can also work with the U.S. Justice Department to "prosecute, defend, intervene in, or appeal" in civil actions.
Congressional aides say they expect the White House proposal to give a consumer panel even more power to enforce consumer protections, but couldn't give details on Monday.
One potential new detail emerged Monday. The White House may propose that the consumer commission's review power extend beyond credit cards and mortgages to life insurance and annuities.
Treasury Secretary Tim Geithner and National Economic Council Director Larry Summers mentioned annuities Monday in a Washington Post commentary about regulatory reforms.
Such a proposal would likely draw industry fire. Insurers argue that it's a bad idea to give a separate agency new power to ban or restrict insurance products without also looking at the financial stability of an insurer, according to a letter last week to Geithner from American Council of Life Insurers President Frank Keating.