The U.S. Treasury on Tuesday sent Congress proposed legislation to create a new regulatory agency with sweeping powers to write and enforce tough new consumer protection rules for banks and other financial institutions.
The legislative language fleshes out plans for widespread changes to U.S. financial regulations the Obama administration released on June 17.
The proposed Consumer Financial Protection Agency aims to protect Americans from abusive practices widely employed during the recent housing and credit boom, such as deceptive and undocumented mortgage lending, poor loan disclosures, and unfair interest rate increases and fee traps on credit cards.
The Treasury's proposal would consolidate consumer protection power in a single agency, giving the CFPA exclusive supervisory and examination authority for consumer compliance among banking institutions.
These responsibilities are now split among several agencies, including the Federal Reserve, which has taken criticism for failing to impose tougher restrictions on mortgage lenders.
Consumer protection will have an impendent seat at the table in our regulatory system. By consolidating accountability in one place, we will reduce gaps in federal supervision and enforcement, U.S. Treasury Secretary Timothy Geithner said in a statement.
The new agency will have powers to write rules and enforce them, and can issue subpoenas, hold hearings and seek court orders to halt abusive practices for both banks and non-banks -- including mortgage lenders, which often fell through regulatory gaps in the current structure.
The Treasury said the agency could impose new rules on mortgage brokers to eliminate conflicts of interest and promote best practices, and ban unfair practices such as yield spread premiums -- side payments from lenders to brokers to push consumers into higher priced loans.
(Reporting by David Lawder; Editing by Padraic Cassidy)