Responding to the 2007- 09 financial crisis: A new Consumer Financial Protection Agency?
esident Obama has released a sweeping plan to respond to the financial crisis and to insure that it is not repeated by altering and expanding the federal regulatory framework for financial services firms. The plan outlines detailed and demanding reporting deadlines for various existing federal regulatory institutions to formulate plans for the changes and asks Congress for action on the plan by the end of this year. One of the main components of the plan is to create a new federal agency, the Consumer Financial Protection Agency (CFPA), to protect consumers and investors from deceptive or dangerous products. This is one of the four broad components of comprehensive regulatory reform proposed by the President and the one that has received the greatest endorsement from congressional leaders in terms of the urgency of action. Not surprisingly, the financial services industry has responded, arguing that a new regulator for consumer protection is not necessary and that it contradicts one of the principal goals of regulatory reform. This paper reviews the status quo, advantages and disadvantages of the proposed changes and the extent to which it addresses or does not address perceived issues arising from the financial crisis.
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