One reason why we need a Consumer Financial Protection Agency
At today's Senate Banking, Housing & Urban Affairs Committee hearing on the proposed Consumer Financial Protection Agency, representatives from both the American Bankers Association and the American Enterprise Institute outlined the chilling effect such a new regulatory body would have on financial innovation. The proposed agency would require purveyors of more-exotic financial products, such as payment option adjustable-rate mortgages, to also provide consumers with "plain vanilla" alternatives such as 30-year fixed mortgages, and with simple disclosures for meaningful comparison. The agency also could ban certain unfair terms and practices, and require brokers and other financial intermediaries to determine if their products really were affordable to the borrower.
Saddled with those requirements, among others, many financial institutions won't bother to offer innovative products to consumers who might indeed benefit, noted Edward L. Yingling, president and CEO of the American Bankers Association. The costs of compliance would be too high, he asserted. That could stifle choice and competition, which ultimately would be bad for consumers. "Ideas that could give consumers benefits or lower costs would never see the light of day," he said.
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