The government is negotiating the creation of Consumer Financial Protection Agency (CFPA) to police changes in the credit marketplace and shield consumers against malpractices. The agency would act as a centralized body responsible for consumer financial protection issues currently handled by seven different federal agencies. It would support the implementation of the Card Act (to be effective from February 2010) to curb financial institutions’ practice of increasing interest rates without any reason or imposing fees without a notice.

According to a survey conducted by Caravan Opinion Research Association for the Consumer Federation of America (CFA), nearly 90 percent of the respondents were in favor of banks disclosing mortgage details. Over three fifths of the consumers opined that mortgage brokers and banks should not be selling expensive mortgage loans to borrowers that do not qualify. Over 80 percent of the respondents wanted the banks to notify the consumer if the person was overdrawing from the account. Moreover, more than two third of the respondents were against the banks who charged penalties in case the borrower paid the mortgage early.

The Legislative Director of the CFA stated that Americans were tired of the sneaky practices of the credit card issuers they faced consistently. He added that the organizations were imposing charges on consumers, which cannot be justified in any way. The agency would protect the consumers from ‘abusive financial practices’ of the banks in the years to come.

The Opposition:

While the Obama administration tries to establish the new agency, banks and financial organizations are lobbying the government against it. A press release by the CFA suggests that these organizations are spending millions of dollars to restrict the bill from passing. They are marketing against the bill by launching ad campaigns and stating that the regulation will fall in the way of financial product innovation.

The decision makers of both the House Financial Services Committee and the House Banking Committee support the Obama administration on the issue. The decision on the bill will be finalized in October 2009 and hopefully ensure fair practices in credit markets.

Source: MoneyMattrs