The Obama administration is in the planning stage of introducing an entirely brand new regulatory body, whose job it would be to monitor consumer-facing financial products, like mortgages and credit cards. This is seen as a pretty big black hole right now in the regulatory structure, and given how many consumers have found themselves up to their neck in debt, with products they didn’t understand, this makes some sense.
WaPo: Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said.
Sources, who spoke on condition of anonymity because discussions are ongoing, said talks have begun with industry officials, lawmakers and other financial experts about the proposal, which would require legislation. Last night, senior policymakers, including Treasury Secretary Timothy F. Geithner and National Economic Council Director Lawrence H. Summers, were to discuss the idea at a dinner held at the Treasury Department.
As the paper notes, this is essentially Elizabeth Warren’t dream commission. Before she was charged with busting Tim Geithner’s balls, she did a lot of work on the effect of confusing or “abusive” financial products on consumers, and she urged more coherent regulation.
Felix Salmon adds some good thoughts:
My feeling is that regulation by product — one entity regulating derivatives, another consumer-facing products (including insurance), and maybe a revamped SEC regulating securities — makes a great deal of sense. Then the Fed would sit atop those “horizontal” regulators, get data from them, and try to keep an eye out for systemic risks, with a particular emphasis on institutions which are too big to fail.
I’m reminded of the silliness that is the fact that Lending Club is regulated by the SEC — something extremely onerous for Lending Club, on the one hand, and something which is clearly outside the scope of what the SEC was designed to do, on the other. Instead, it, along with other peer-to-peer lenders, should be regulated by the new entity.
So far it sounds reasonable. We look forward to the details and the debate.