Credit cardholders who want to complain about unfair interest rate hikes or questionable credit card terms would have a single government agency to turn to rather than six under a sweeping Wall Street reform bill passed Friday by the U.S. House of Representatives.

The House voted 223-202 approving the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) -- lawmakers' attempt to address many of the problems that threatened to implode the U.S. economy in the fall of 2008. None of the 175 Republicans voting on the measure supported the bill and 27 Democrats voted against it. 

Among other things, the bill creates a new Consumer Financial Protection Agency with a director and commission focused solely on protecting consumers from a host of financial products and services, including credit cards, payday lenders, mortgages and student and auto loans.

Banking industry opposes
The banking industry, which lobbied hard to block the new consumer financial protection watchdog, expressed concern about the bill's passage:

"The breadth of authority granted to the director of the proposed new consumer financial regulator is unprecedented, and this new regulator would not be responsible for considering institutional safety and soundness along with consumer protection," Edward L. Yingling, president of the American Bankers Association trade group, said in a prepared statement after the vote.

Yingling added: "Reform is needed, and ABA wants to work with the Congress and the Administration to enact that reform, but the House-passed bill contains provisions that have nothing to do with needed reform and which could make it very difficult for banks to effectively serve their consumer and business customers."

Consumer groups applauded the vote as historic. "This is a big win for consumers," Travis Plunkett, legislative director of the Consumer Federation of America, said in a statement.  “The Consumer Financial Protection Agency (CFPA) will ensure that credit and payment products do not have predatory or deceptive features that can harm consumers or lock them into unaffordable loans."

New agency's powers
The new agency would be a one-stop watchdog for credit card users with one main toll-free hotline number for complaints. Currently, depending on the type of bank, credit union or financial institution that issues a credit card, consumers have to contact one of six different regulators to file complaints. Consumer advocates have complained that those regulators -- chiefly the Federal Reserve Board and the Office of the Comptroller of the Currency -- devote little time and resources to consumer protection. Instead, they focus more attention on insuring that banks and financial institutions operate safely with sound financial practices.

The agency would have jurisdiction over:

  • Debit cards and overdraft fees.
  • Gift cards and stored value cards.
  • Credit reporting agencies (such as TransUnion, Equifax and Experian).
  • Third-party debt collectors and debt buyers.
  • Credit counseling.
  • Debt management and debt settlement.
  • Identity theft and data security.
  • Money transfer services (remittances).
  • Payday lenders.
  • Check cashing stores.

In addition, the consumer financial protection agency would become the enforcement arm for several existing laws governing consumer credit and credit cards, including the new Credit CARD Act of 2009, the Truth in Lending Act and the Fair Credit Reporting Act.

"This bill protects Americans from some of the most abusive practices that led up to the crisis, including predatory credit card and mortgage lending that saddles consumers with loans they have no chance of paying back," House Majority Leader Steny Hoyer, a Maryland Democrat, said in a statement released shortly before the vote. "Just like Wall Street firms, Americans have an obligation of responsibility when it comes to borrowing -- but by creating a Consumer Financial Protection Agency and ensuring that loans are fair, transparent and written in plain language, we can help them know clearly what their responsibilities are."

Not all Democrats were on board with creating the new consumer agency. Idaho Rep. Walt Minnick led an effort by a small coalition of Republicans and moderate Democrats to jettison the watchdog agency from the reform bill and instead create a new 12-member council comprised of representatives from existing regulatory agencies. Minnick argued during debate on his amendment that creating a separate agency was a mistake. "Every regulation has some impact on both the solvency of an institution and its customers," Minnick said, adding. "You don't achieve better regulation by splitting the responsibility between two regulators."

Opponents of Minnick's plan argued that lack of attention to consumer protection by the existing regulators contributed to the financial meltdown.

"So that the mistakes of the past do not recur ... We need an independent agency whose sole purpose is to protect and empower consumers," said Rep. Melissa Bean, an Illinois Democrat.

Minnick's amendment failed by a 223-208 vote. Only 33 Democrats and every Republican voting (175) supported his measure.

The consumer protection agency was originally proposed by President Obama in June 2009. Rep. Barney Frank, the House Financial Services Committee chairman, introduced a consumer financial protection agency bill to formally create the commission. His committee voted 39-29 Oct. 22, 2009, passing a bill. Earlier this month, Frank introduced H.R. 4173, which folded the consumer protection agency into a massive Wall Street reform package.

The next step
The U.S. Senate has yet to debate its own Wall Street reform bill. On Nov. 10, 2009, Senate Banking Committee Chairman Christopher Dodd released a draft of the Restoring American Financial Stability Act. It, too, would create a consumer financial watchdog agency.

"Whether taking out a mortgage, getting a credit card or investing for retirement, Americans deserve to receive the clear and accurate information they need to make wise decisions, to be protected from hidden fees and abusive terms that have become all too common in the marketplace, and to know that the financial products they're being offered are safe," Dodd said in a Nov. 19 statement.

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