Consumer Financial Protection Agency

February 10, 2010

financialObama administration is currently making plans to create a duty to provide financial protection for consumers. How the form of the plan? And how its importance to the economy?

Agency currently being drafted is the Consumer Financial Protection Agency, is responsible among others for:
• Provide solid and clear information to consumers, and protect consumers from unfair practices and deceptive
• Promote financial fair, efficient, and innovative services to consumers
• Improve access to financial services.

The agency will be independent, and later got control of financial institutions, both banking and non-banking. Include the authority set the rules for banks and non-banking financial institutions and develop a higher standard. In addition, they also oversee these institutions will compliance with the rules.

There are five key principles held by this agency, among others Transparency, Simplicity, Fairness, Accountability, and Access. Here is a range of these principles, as quoted by Fox Business.

Transparency
Later, the CFPA (Consumer Financial Protection Agency) will require obvious disclosure to consumers. Thus, in addition to know benefits, consumers are also aware of the risks of financial products. Consumers also need to know the consequences of their financial decisions.

Simplicity
CFPA going to require companies to offer ‘plain vanilla’ products  which tend simple and clear terms, and give priority to this product. Only these alternative products will be more controlled, and related violations will be penalized more.

Fairness
Unfair practices to the consumer will be banned. For example, such as ‘yield spread premium’ in which the mortgage broker who wore more expensive loans than qualifications should be. In addition, brokers will also be paid in accordance with the performance of these loans, rather than a lump-sum. Practices such as prepayment Penalties, where penalties if the borrowers repay the loan before maturity, will also be banned.

Accountability
CFPA will be responsible for primary oversight of financial consumer protection. Thus, must be convinced that all banks, non-banking, and brokerage follow the same rules, nothing is missed.

Access
In addition to the practice of emphasizing conformity with applicable law, this agency also tasked with ensuring that consumers and communities who have not been well served, also gain access to financial services carefully.

As you well know, one of the causes of the crisis this time is due to bad debts suffered by the owner of the house. They do not realize that they are exposed to the risk of high interest rates, which resulted in interest charges become less affordable. One of the objectives of the establishment of this agency is to ensure that these problems no longer occur, so that a similar financial crisis can be avoided.

If consumers are often a lot before do not realize the consequences of doing financial transactions due to the lack of openness, then the front should not be. Disclosure of information to consumers should come first, whether positive or negative information.

With the establishment of this agency, in addition to consumer protection, the banks and non-banking financial institutions also do risk management well. Why? Of course, because consumers get more transparent information, clearer rules and controls and more stringent sanctions.

This plan is less positive response for tighter regulation can reduce the income potential of banking and non-banking financial institutions. However, on the other hand the presence of these agency also have a positive impact that can reduce financial risks. High risk, high return.

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