Could Obama's Aid For 'Little Guy' Hurt Little Banks? One part of Obama's plan for regulatory overhaul would create a consumer financial protection agency to toughen consumer protections and identify bad business practices, but many smaller bankers say the new agency would unfairly burden them.
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Could Obama's Aid For 'Little Guy' Hurt Little Banks?

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Could Obama's Aid For 'Little Guy' Hurt Little Banks?

Could Obama's Aid For 'Little Guy' Hurt Little Banks?

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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This is WEEKEND EDITION from NPR News. I'm Alison Stewart.

This past week, the Obama administration rolled out its proposed overhaul of the financial regulatory system. If approved by Congress, the new system could change consumer protections for everything, from giant home mortgages to small debit card fees.

Joining us to explain what this would mean to the average consumer is NPR's senior business editor Marilyn Geewax. Hi, Marilyn.

MARILYN GEEWAX: Good morning, Alison.

STEWART: So, we've heard a lot in recent days about how the government will tighten its regulatory grip on big financial institutions. But will there be changes for average people who just want to borrow a little money?

GEEWAX: Well, President Obama certainly hopes so. He essentially agrees with those consumer advocates who've been saying for years that the government can oppose safety regulations on cars, on toys, medicines. So, why shouldn't it have the power to crack down on toxic financial products? So, what the administration wants is for Congress to create a consumer financial protection agency.

STEWART: I'm already practicing - CFPA, the CFPA.

(Soundbite of laughter)

GEEWAX: Alphabet soup.

STEWART: What would the new agency do, the CFPA?

GEEWAX: It would rewrite the rules under existing laws for all kinds of consumer loans. The goal would be to promote fair practices and to make financial products a lot more understandable to those of us who might not have accounting degrees.

The White House doesn't want more what they call transparency, that is, a lot of gobbly-gook and words written on page after page that you immediately throw away. It wants simplicity. It wants you to actually be able to understand what those disclosure statements say.

Another thing is the agency would collect up and monitor consumer complaints. There's one other important point here, too, is that the White House wants to get states to have more power. In recent years, the financial services industry generally was winning the argument that they didn't want to have to deal with 50 different states and 50 different sets of rules. They wanted things to be fairly simple for themselves.

But consumer advocates said that consumer problems generally start at the state level. So that's where the regulators can respond more quickly, that's where they see the problems and that's where a lot of regulation should happen.

STEWART: So, if this new agency is launched, what are the questionable practices that it would try to seek out and stamp out?

GEEWAX: Consumer advocates want to make sure that we never again see public enemy number one rise back up. Those were those subprime mortgages with the low teaser rates. When we had the housing boom, especially in 2004 and five, we got a lot of loans where for the first couple of years you could afford it, but then after a while the interest rates would start ratcheting up and pretty soon you found yourself with a completely non-affordable mortgage.

Another thing that regulators don't want to see anymore is those bank overdraft plans that often charge people those crazy-high fees. You borrow just a little bit of money and you get hit with huge fees to replenish your checking account.

And another thing are the prepaid bank cards. Those have been big problems, because a lot of times people have no idea how expensive those cards are. They come with monthly fees, usage fees, reloading fees, overdraft fees, even dormancy fees for not using them.


GEEWAX: So - and then if you get mad about it, they charge you a fee for…

STEWART: Getting mad?

GEEWAX: …talking to a customer service person.

STEWART: Are you serious?

(Soundbite of laughter)


STEWART: Critics say, though, that there are already a slew of agencies out there that are supposed to be protecting consumers against these types of practices, so why do we need another agency here?

GEEWAX: In the past, the complaints often were made, but they'd get spread out over a lot of different regulatory agencies. And what the administration is looking for from this new agency would be to pull it all together so that in one place you could see patterns and practices.

So, for example, a couple of years ago, the worst mortgage practices were first developing in hot markets like California and south Florida, where mortgages were crazy, and then it spread to other states. So, if there had been one federal agency looking at this, it could have seen these problems developing and then snuffed it out before it spread to the Midwest.

STEWART: Is there any part of this new agency which can be seen as controversial?

GEEWAX: Oh, sure. One of the groups that's particularly incensed is the small community bankers. They say, look, we didn't cause this financial crisis. So, they fear that if they get a lot more heavy regulatory burden, they're going to end up being driven out of business and then leaving consumers worse off.

STEWART: So, how does this affect me? Let's talk about me.

GEEWAX: Okay. All about you.

(Soundbite of laughter)

STEWART: How does this affect me and every other consumer out there?

GEEWAX: All right. Well, Alison, I think that in the end the proponents of it say that it would protect all of us from exorbitant fees for very small loans and that we'd have this aggressive new friend in Washington - an agency that would really be listening to our complaints.

But if the bankers turn out to be right, they say that we might end up with fewer community bankers and it might be harder for people with questionable credit histories to get any sorts of loans.

STEWART: NPR senior business editor Marilyn Geewax, thanks for joining us.

GEEWAX: You're welcome.

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