Senate passes major legislation to re-regulate financial industry
WASHINGTON (MarketWatch) -- Borrowers will be protected from unscrupulous lenders, thanks to the far-reaching bank-reform bill passed in the Senate on Thursday night, consumer advocates said Friday.
Along with new regulations on the biggest institutions and the riskiest practices, the legislation calls for creating a consumer financial-product watchdog, which would write rules for companies that provide services and products such as mortgages and credit cards.
The consumer watchdog would also gather information about emerging risks to consumers and the marketplace, among other actions.
"It's a historic victory on consumer protection," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. "The banks, even though they have destroyed the economy, still have a powerful lobby and powerful friends on Capitol Hill. They did not want an independent agency, and we beat them."
"This is a big win for consumers," said Travis Plunkett, legislative director of the Consumer Federation of America. "The consumer bureau will ensure that credit and payment products do not have predatory or deceptive features that can harm consumers or lock them into unaffordable loans."
The watchdog will "rein in deceptive marketing practices and require improved disclosure of terms," Plunkett noted. "It will also allow consumers to shop or take out a loan knowing that there is an agency looking out for their best interests."
Other measures
The consumer watchdog is just one piece of the overall bank-reform bill, which calls for the most significant increase in the regulation of U.S. banks since the Great Depression, placing new restrictions on the nation's biggest banks and reining in the Federal Reserve. See our full story on the Senate's vote on Thursday.
Final legislation could be enacted into law by July 4, said Barney Frank, D-Mass., chairman of the House Financial Services Committee, who said the House and Senate bills are very similar. Top leaders from the House and Senate will meet over the next month to reconcile the differences in the bills passed by each chamber and combine them into one law to be signed by President Barack Obama.
Passage of the financial regulation bill in the Senate is the second major legislative accomplishment this year for Obama and the Democratic congressional leaders, following on the heels of the enactment of the health-care bill earlier.
The mammoth legislative package -- which passed 59 to 39, with four Republicans voting for the bill - sets up an agency to watch for system-wide risks, creates a mechanism to euthanize huge failing banks, requires the biggest banks to raise more capital and divest their derivatives trading units, changes the way credit-rating agencies are assigned to rate banks' structured finance securities, and allows Congress to conduct an unprecedented, one-time audit of the Fed's emergency response programs.
Sens. Scott Brown, R-Mass., Olympia Snow, R-Maine, Susan Collins, R-Maine, and Charles Grassley, R-Iowa, were the four Republicans who voted for the bill, while two Democrats -- Sens. Russ Feingold, D-Wis., and Maria Cantwell, D-Wash., -- voted against it. Two Democrats did not vote - Arlen Specter of Pennsylvania and Robert Byrd of West Virginia.
Auto dealers not exempted
Consumer advocates cheered the exclusion of an amendment to the bill that would have exempted some auto dealers from coverage by the watchdog, but the final bill could exempt them from oversight. The Senate will vote Monday on whether to "instruct" the conference committee to accept the House language, which carves out an exception for the auto dealers.
"To its credit, the Senate fought off efforts to carve out auto dealers and other special interests, to put consumer protection under the thumb of the bank regulators who failed us and a myriad of other efforts to weaken the agency," said Lauren Saunders, managing attorney of the Washington office of the National Consumer Law Center.
