If you think the fight over President Obama’s health care reform plan is brutal, just wait until the administration tries to face down the nation’s banks and mortgage brokers.

One year after the collapse of Lehman Brothers triggered a global financial panic, and huge housing lenders like Washington Mutual and Countrywide Finance were forced out of business, the administration is determined to prevent another crisis. Obama says the nation’s banks, having been given billions in federal funds just to stay afloat, must now accept tougher regulations that offer consumers better protection while reducing risk to the financial system.

“To protect our economy and people from another market meltdown, our government needs to fundamentally reform the rules governing financial firms and markets,” Obama told the nation Sept. 19 in his weekly radio address.

A key part of the reforms that Obama wants Congress to establish is creation of a consumer financial protection agency (CFPA).

“Consumers shouldn’t have to worry about loan contracts written to confuse, hidden fees attached to their mortgages, and financial penalties—whether through a credit card or debit card—that appear without a clear warning on their statements,” Obama said. “And responsible lenders, including community banks trying to do the right thing, shouldn’t have to worry about ruinous competition from unregulated and unscrupulous competitors.”

The president noted that some borrowers signed contracts they didn’t fully understand, offered by lenders who didn’t fully disclose the facts. “That’s why we need clear rules, clearly enforced,” Obama said.

A voice for consumers

The new CFPA would centralize consumer protection authority that now resides in seven different agencies. It would issue rules compelling financial institutions to make their loan documents more readable and transparent, would outlaw exotic loans too complex for most consumers to understand, and would offer guidelines for mortgage products and credit card agreements.

The agency would be staffed with examiners, much like those in existing bank regulatory agencies, with authority to issue subpoenas and seek penalties.

The proposal would also give individual states the power to impose stricter rules than federal mandates.

The plan is already drawing fierce opposition from financial institutions.

“We all agree that we have to protect consumers,” said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, which represents large banks and credit card issuers. “But let’s strengthen the regulators we already have. If consumer protection is not today the core mission for federal regulators, then let’s step that up.”

Poll cites broad support

Those who advocate placing all consumer protection authority in a single agency say the CFPA would “streamline government and allow the market to flourish with good products,” in the words of Susan Weinstock of the Consumer Federation of America (CFA). A recent poll by the group found that 57 percent of respondents support the creation of the new federal agency, even though Americans in general tend to support a smaller government.

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