The Financial Reform Bill Highlights Need for Real Reform


Creation of the CFPA & More

On Friday, the House of Representatives passed the Wall Street Reform and Consumer Protection Act (aka HR Bill 4173). The vote was 223-202. If it were to pass the Senate, the bill would create the regulatory Consumer Financial Protection Agency (CFPA) in addition to other Wall Street and financial institution directed reform measures.

Republican Opposition

Obama applauded the passing of the bill, but blasted Republicans and finance lobbyists in his weekly address and on a 60 Minutes interview airing on Dec. 13 for trying to prevent reform in light of the 2008 economic collapse. Zero Republicans were in favor, (in addition to 27 Democrats who opposed the legislation). Last week, top House Republicans urged more than 100 financial industry lobbyists to work harder to defeat the bill. Lobbyists have spent more than $300 million this year trying to shut the bill down. Republicans argue that the CFPA would limit product innovation and dictate what type of loans consumers should receive in certain situations.

According the White House, as stated on, the CFPA would:

1. Provide protection against unfair credit card rate increases and late
fee traps.
2. Set guidelines for simple “Plain Vanilla” mortgage products.
3. Duties of care for mortgage brokers to avoid broker conflict of interest.
4. Ban unfair side payments from lenders to mortgage brokers.

On Executive Compensation

The bill would also oversee executive compensation practices (although not the compensation amounts). In the 60 minutes interview, Kroft asks Obama if he thinks that bailed out banks repayed TARP money just to avoid government oversight on compensation and pay. “I think that in some cases, [to be able to pay bonuses] was the motivation,” Obama responds. “Which I think tells me that the people on Wall Street still don’t get it…They’re still puzzled why it is that people are mad at the banks. Well, let’s see. You guys are drawing down 10, 20 million dollar bonuses after America went through the worst economic year…in decades and you guys caused the problem.”

Watch CBS News Videos Online

In all fairness, they do seem to get it, they just don’t seem to care.

Bittersweet Response from Consumer Groups

Some consumer groups see some benefit in the CFPA, yet argue that the bill does little to address breaking apart ‘too big to fail’ financial institutions such as Goldman Sachs and JP Morgan into pieces (to protect against systemic failure). Others note that the bill does nothing to help those in foreclosure situations or address complex derivatives, the likes of which brought down AIG. Three amendments to address derivative oversight were voted down.

Two members of the Progressive Caucus — Reps. Dennis Kucinich (D-Ohio) and Marcy Kaptur (D-Ohio) — also voted against the final legislation because they were concerned that it didn’t go far enough to help consumers.

Final Thoughts

It is very clear that financial institutions and their lobbyists have had a heavy hand in reshaping the WSRCPA to be a shadow of its former self. Sadly, it’s unclear whether the consumers and taxpayers (whom the bill was originally created for) will be better off should the bill pass the Senate in early 2010.

Perhaps the reform that we need most would come in the form of the regulation of lobbyist activity and campaign contributions. The Center for Responsive Politics found that members of the House who voted against the measure collected 70 percent more from commercial banks since 1989, on average, than those supported it. And they raised an average of 50 percent more from credit and finance companies than the bill’s supporters, the CRP found.

I vote for reforming the reformers.

For more of GE Miller’s writing, visit personal finance blog

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