New Consumer Protections Losing Steam Already?

Congress responded to cries for better consumer protection this summer with legislation to create a new Consumer Financial Protection Agency which would regulate mortgages, credit and debit cards and other financial products. The House Financial Services Committee will take up the reforms Wednesday, but there are already concerns that the reforms are being watered down. Host Scott Simon talks with New York Times columnist Joe Nocera.

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SCOTT SIMON, host:

There was a loud cry for better consumer protection after the banking industry imploded and credit all but dried up. Congress responded this summer with legislation to create a new consumer financial protection agency that would regulate mortgages, credit and debit cards and other financial products. The House Financial Services Committee will take up the reform starting Wednesday, but there are already concerns that some of the reforms are being watered down. Joining us now from the studios of the Radio Foundation in New York to talk about the proposed banking reforms, our friend from the business world, Joe Nocera. Good morning, Joe.

Mr. JOE NOCERA (New York Times): Good morning, Scott.

SIMON: Nice to talk to you.

Mr. NOCERA: As ever.

SIMON: What are the main differences between the legislation proposed by the White House and the marked up version that the Financial Services Committee is going to take up next week?

Mr. NOCERA: Well, there's a handful of things that Chairman Barney Frank took out very, very quickly. One was the fabled plain vanilla proposal; in other words, if a mortgage worker wanted to sell you an exotic option on a mortgage, he also had to put down on the table a 30 year fixed, so that you could see the difference. And the same would be true of credit cards, installment loans. You'd always have to have a plain vanilla plan next to the exotic plan so that the consumer could see the difference.

So there's a handful of things like that. There's another one, the reasonableness standard, Scott, which a broker who wants to sell you a stock has to be able to say in good conscience that A) you have the risk tolerance for that and that you can afford to buy it or lose the money. They wanted to do the same thing, the administration wanted to do the same thing for somebody trying to buy a mortgage, which seems completely reasonable, and that was also taken out.

SIMON: Maybe it's just the banking industry trying to water down the proposals?

Mr. NOCERA: Well, certainly that's part of it. In fact, that's a big part of it. You know, in every town in America, there's a small town banker. And the big banks don't have that much clout in this fight, but the small banks have enormous clout. You know, they are the backbone of these towns and they often have a lot of sway with the congressmen, so that's part of it. But the other part it really is that, you know, Congressman Frank wants to get a bill into law and he needs support. And that means he needs to bring along certainly the Blue Dog Democrats because he's not going to get any Republicans - who are violently opposed to this on principle.

So he's going to make compromises that he feels he needs to make to get the thing passed.

SIMON: Joe, I want to make you a one-man truth commission briefly, all right?

Mr. NOCERA: Sure.

SIMON: President...

(Soundbite of laughter)

SIMON: Not briefly, perhaps for the rest of your life if you handle this one correctly.

President Obama made some remarks about legislation yesterday and he was especially critical of an ad campaign by the U.S. Chamber of Commerce.

President BARACK OBAMA: You might have seen some of these ads, the ones the claim that local butcher and other small businesses some how will be harmed by this agency. This is, of course, completely false. And we've made clear that only businesses that offer financial services would be affected by this agency.

SIMON: So let me get you to weigh this for us, if you could. Does the chamber's claim have any basis in fact? Is the president correct when he says it's completely false?

Mr. NOCERA: The president absolutely is correct. The chamber - between this and their climate change stuff - seems to be on a campaign to hurt their own credibility. They've actually hurt themselves in Congress and even among the bank lobbyists, with these extraordinary claims that the butcher will be put out of business or will be regulated by this, which is ridiculous.

The law is going to include businesses that come under the Truth and Lending Act. Now, I don't know many butchers that come under the Truth and Lending Act.

SIMON: So what about...

(Soundbite of laughter)

SIMON: Maybe a really big one would.

But what about those critics who say that the legislation, however, is so pallid that it's virtually useless? Is that at the same time a fair assessment?

Mr. NOCERA: I don't think it is. I do miss some of these things that have taken out - that have been taken out. But the truth of the matter is it is going to have broad powers. I mean the word unfair is undefined in the legislation. And so the commission - the agency is going to get to decide what is an unfair practice; can you roll back those debit overdraft fees, for instance. Is this mortgage deceptive?

You know, I think it has the potential to be quite powerful, even without the things that - which is, by the way, the reason the bank lobby is still opposing it.

SIMON: Joe Nocera writes the Talking Business column for The New York Times.

Thank you for being with us. And Joe...

Mr. NOCERA: Yes, Scott.

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