The much-anticipated Consumer Financial Protection Bureau will be an independent agency housed in the Federal Reserve. The office will regulate a range of consumer financial services, such as online banking, credit unions and mortgages--however, auto dealers are excluded. Elizabeth Warren--who proposed the agency--has been named a special advisor and is responsible for setting up the new bureau.
"The Consumer Financial Protection Bureau will crack down on the abusive practices of unscrupulous mortgage lenders, reinforce the new credit card law we passed banning unfair rate hikes, and ensure that folks aren't unwittingly caught by overdraft fees when they sign up for a checking account," President Obama told the press. "[It] will be a watchdog for the American consumer, charged with enforcing the toughest financial protections in history," he noted.
The CFPB will also have an office of financial literacy to educate consumers on financial products and services, and the use of credit.
While the President praised its watchdog status, others questioned its authority. Forbes blogger Halah Touryalai said inadequate funding and staffing will make it nearly impossible to effectively prevent systemic risk. The CFPB's budget will only be $550 million, just half of what the SEC spends on the securities industry. "How will the CFPB protect consumers from every other kind if financial fraud with just half the resources?" Touryalai asks.
Luckily bureau officials have some time to figure that out. Consumer financial protection functions, held by other federal agencies, officially transfer to the CFPB on July 21, 2011.
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