The Obama Administration began talking up its proposals for regulatory reform Wednesday afternoon, and consumer protection is an important part of the plans that will be presented to Congress for approval.  Despite recent speculation that the Administration was cool to the idea of a stand-alone consumer financial protection regulatory body, such an agency is being proposed, a Financial Consumer Protection Agency. 

The few details available now describe a powerful agency much like the Federal Trade Commission with authority to decide which financial products and terms for those products can be provided to consumers.  Perhaps revealing is the requirement that financial institutions offer "plain vanilla" credit cards, mortgages and other financial products, and obtain approval of the Agency for any more sophisticated versions of those products.  Does this reflect a bias towards commoditization of those products?  I have seen reports that the proposal will require in some cases that a consumer be given the opportunity to "opt out" of the standard product before a more sophisticated product could be offered to the consumer.  Other details include an emphasis on clear disclosure and simple explanation of terms of financial products, which may be further pressure towards simple, commoditized products, since, frankly, the more complicated a financial product is, the less comprehensible any attempt to explain it in writing becomes. 

The  Agency would assume from existing regulatory agencies their current consumer protection responsibilities, making it the primary federal regulator for consumer financial protection, with authority to impose fines and penalties for violations.  However, states would be permitted to enact more stringent consumer protections than adopted by the Agency.

Business interests, not surprisingly, oppose the proposal for an independent consumer protection agency. Their arguments include the concerns that the new regulator will not know the financial institutions as well as the existing regulators do, and that the effect of the creation of the Agency will be to make the existing regulators less concerned with consumer protection.  Advocates for the Agency argue that the existing regulators have not placed a high enough emphasis on consumer protection and were subject to "regulatory capture" by the financial institutions they regulated. 

As is the case with these kinds of debates, both sides have good points, and some say that the fight in Congress against the proposal will be intense.  My guess is that the proposal will pass, since the need of our leaders to appear to be doing something, anything, in response to the carnage in consumers' (read voters) lives is overwhelming.  After that, time will tell if there is a big change in consumer financial protection enforcement.  Maybe the biggest benefit of the requirement for approval of new products will be that the more egregious practices that have occurred in the past will simply never get off the drawing boards of the financial institutions.