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Consumer protection or just more red tape?

Wednesday 12 May 2010 - by Bernadette Mill

Bernadette Mill takes a look at the Obama administration’s proposals for a Consumer Protection Agency and finds opinion is divided over the merits of such an organisation

The creation of a Consumer Financial Protection Council in the US has been hailed by some commentators as unnecessary bureaucracy with some saying it could fail to protect the very people for whom it is being created.

The proposal aims to increase regulation in order to prevent unrest in the financial sector, predominantly caused by the activities of larger institutions.

As a US Presidential candidate in 2008, Obama warned that the failures of regulation had created, “a distorted market that creates bubbles instead of steady, sustainable growth: a market that favours Wall Street over Main Street, but ends up hurting both”.

The Bill has been approved by the House of Representatives and is currently in the Senate. The main features of Obama’s proposals include the creation of a Consumer Protection Agency and a Financial Stability Oversight Council.

The Agency would be tasked with reducing the influence of predatory mortgage lenders and credit card companies. The Council would comprise of nine members who would have the power to break up large institutions that they perceive to be a risk to the stability of the financial sector.



The Bill also includes the creation of a $50bn (€38bn) fund to assist companies with liquidation. The proposals seek to extend the Volcker rule, whereby banks would be required to limit their engagement in proprietary trading.

In order to appease Republicans and get the Bill through Congress, Senate Banking Committee Chairman Christopher Dodd has suggested replacing the Agency with a Bureau of Financial Protection – that would exist within the Treasury. This Bureau would have significantly limited powers as compared to the Agency initially proposed by the Obama Administration.

The Bureau would take power from the Federal Reserve to write rules to give increased consumer protection and would also have extra freedom to write regulations that cover products issued by financial institutions. However, policymakers remain sceptical as to how independent this Bureau would be in practice.


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