WASHINGTON -- Something very useful for consumers may come of this economic meltdown. President Obama wants to create a powerful, user-friendly Consumer Financial Protection Agency.
The agency would eliminate small print, gotcha clauses and legalistic gobblegook in mortgages, credit card and other financial agreements. And the agency would have teeth -- it would have the power to rewrite mortgage laws.
The Obama proposal is modeled after the pending Financial Product Safety Commission legislation introduced last April by Sen. Dick Durbin (D-Ill.)
Durbin got the idea from Elizabeth Warren, a Harvard law professor, who, as it happens, went on to be hired by Congress to watchdog the banking industry Troubled Assets Relief Program. Durbin joined with Sen. Chuck Schumer (D-N.Y.) and Sen. Ted Kennedy (D-Mass.) last spring in asking Treasury Secretary Tim Geithner to create a consumer watchdog agency as part of the Obama administration's overhaul of the financial markets regulatory system.
He did. Obama on Wednesday will roll out his new financial regulatory system, including the proposed commission, which would:
• • Promote "concise and clear information for consumers" and protect "consumers from unfair and deceptive practices."
• • Mandate more disclosure and provide information about costs, penalties and risks so consumers have a "clear disclosure regarding the consequences of their financial decisions."
• • Make it harder for people to sign agreements for expensive mortgages, credit deals, etc. when cheaper "plain vanilla" products would meet their needs.
• • Revamp the mortgage industry so the subprime mess does not happen again -- where borrowers were channeled to risky or more expensive mortgages when they qualified for cheaper, less risky products.
Mortgage brokers would be required "to determine the mortgages they sell are affordable to borrowers."
• • Force lenders to hold on to at least 5 percent of their loans -- rather than sell the entire debt to an investor -- to have an incentive not to make risky loans.