WASHINGTON - - At its core, President Barack Obama's overhaul of regulations for the financial industry seeks a fundamental change: Make the federal bureaucracy work for consumers, not just Wall Street. And Wall Street doesn't like it.
Obama complained in a White House speech Wednesday that average Americans were often baffled by such intricacies as the terms of credit cards, home loans and other financial products. That confusion helped fuel the subprime mortgage meltdown that sent the U.S. and foreign economies reeling.
Much of his reform package involves changes to the inner workings of the financial system, but Obama said that better consumer protection is a key to avoiding future financial crises.
"A culture of irresponsibility took root from Wall Street to Washington to Main Street," Obama said.
The new plan calls for tough new requirements for companies whose failure would threaten the economy and new oversight over complex financial derivatives. Obama also proposed two new agencies - one to regulate all federally chartered banks and the other to protect consumers as they navigate the complex maze of financial products.
Such safeguards could reach to such everyday matters as bank overdraft protection. A new agency would have the power to write federal rules that, for instance, prohibit prepayment penalties on loans, require better disclosures, order companies to offer easily understood options, and levy fines and penalties for lenders that don't comply.
"The most unfair practices will be banned," Obama said. "Those ridiculous contracts with pages of fine print that no one can figure out, those things will be a thing of the past. And enforcement will be the rule, not the exception."
Consumer groups hailed the plan.
"This is a dramatic shift in the focus of financial regulation which should lead to a credit marketplace which is easier for consumers to understand and safer," said Travis Plunkett, legislative director for the Consumer Federation of America.
But banks and other Wall Street firms that earn billions of dollars on consumer financial products attacked the proposal, setting the stage for what likely will be a hard-fought legislative battle.
"We intend to take our case to Congress to explain why we believe adding new layers to a broken regulatory system is not the answer," said David Hirschmann, president of the Center for Capital Markets at the U.S. Chamber of Commerce.
