The big win for consumers in the Wall Street reform that cleared Congress last week is the creation of a consumer protection agency designed to look out only for them.
Federal regulators have had the dual duties for years of protecting consumers in money matters and ensuring the safety and soundness of the nation's financial institutions. But when it came down between the two, consumer protection often took a back seat.
"They used to say you were more protected from sausages than mortgages at the federal level," says Terry Connelly, dean of Golden Gate University's business school.
No more. Financial reform, which is expected to be signed into law any day now, establishes the Bureau of Consumer Financial Protection.
This new agency will have the power to regulate a wide range of financial products and services, including credit counseling, payday loans, mortgages, credit cards and other bank products. And it won't be easy for other agencies to override the bureau's regulations.
Additionally, the bureau will be charged with financially educating consumers. And it will collect and monitor consumer complaints, and report back to Congress.
"This has enormous potential because this can affect so many different products and services that people deal with on a day-to-day basis, says Ruth Susswein, an advocate with Consumer Action.
Critics fear that the bureau has too much power and contend that we'd be better off just enforcing existing laws. But if we learned anything from the past couple of years, it's that consumers need a heavy hitter in their corner.
They just might have to wait a year or so before seeing significant changes. After all, the agency must be created first.
It won't need to start entirely from scratch. Other regulators, such as the Federal Reserve, Office of Thrift Supervision and the Federal Trade Commission, will transfer some of their consumer protection duties to the bureau along with employees. The bureau must be up and running in six to 12 months, although it can take an extra six months if needed.
Congress has piled a lot on the bureau's plate.
It will have one office to enforce fair lending laws and another one to promote financial literacy so we make better decisions with our money. Two other offices will focus on the protection and financial education of Americans age 62 and over and armed service members and their families.
An ombudsman for private education loans will be available to help borrowers resolve complaints with lenders. Another ombudsman will act as a liaison between the bureau and anyone with gripes about its regulations. The bureau will establish a toll-free number and website where consumers can complain.
The agency will study mandatory arbitration in financial services — and will have the power to eliminate it. It will report on whether credit scores sold to consumers differ widely from those purchased by businesses — which they often do — and whether that puts consumers at a disadvantage.
The bureau, which will be an independent agency within the Fed, will have a lot of freedom and teeth. Its regulations can't be vetoed by other regulators unless the rules would undermine the country's financial system — a high hurdle to meet.
And amazingly, Congress protects the bureau from meddling — from Congress. The bureau's annual funding will come from a percentage of the money the Fed brings in, not from Congress.
"We have seen with other consumer protection agencies over time that special interests stop, slow or manipulate funding," says Travis Plunkett, legislative director for the Consumer Federation of America. "This is about as good as it gets to create a stream of funding that can't get monkeyed with."
Initially, the bureau's budget could be $450 million to $500 million a year, Plunkett estimates. And if that's not enough, the bureau can seek another $200 million a year from Congress. (In comparison, the FTC's budget is around $292 million.)
The bureau's authority has limits. For example, while all banks must follow the bureau's regulations, the agency will have enforcement power only over those with more than $10 billion in assets.
The bureau won't regulate lawyers, tax preparers, insurance companies, stock and real estate brokers, or auto dealers.
Pamela Banks, senior policy counsel with Consumers Union, is disappointed with the exclusion of auto dealers, saying some receive financial incentives for pushing consumers into higher-rate loans. One consolation, she says, is that the new law will give the FTC the ability to more quickly pass rules to address loan abuses at dealerships.
Consumer advocates also don't like a provision that requires the bureau to give a "sneak peek" at proposed rules to small businesses that are directly affected. This will give an unfair advantage to these businesses, which can then lobby against rules they dislike before the public has a chance to see them, Banks says.