Senate Banking Committee head, Christopher Dodd, filed a proposed bill that will establish an independent agency to strengthen consumer protection rights by controlling financial products - such as credit cards and mortgages.
If approved by Senate, the creation of Consumer Financial Protection Agency will limit the powers of Federal Reserve and Federal Deposit Insurance Corporation (FDIC) in supervising bank operations and regulating policies.
In releasing the 1,136-page draft bill, Dodd accused two federal agencies of failing to address credit card issues which put consumers in financial crisis.
The Senator clarified that Federal Reserve and FDIC's functions are to regulate operation and to protect banks and financial institutions' profits. Their roles run counter in protecting consumers.
Currently, consumer protection is handled by government agencies, including Federal Reserve, FDIC, Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).
This new Consumer Financial Protection Agency will be led by a five-member board from several regulatory agencies. It shall have power to write rules in supervising and enforcing consumer protections. It shall be given authority to investigate and prosecute companies that commit financial abuses.
With the wide function that will be given to this watchdog agency, it is expected to eliminate bad business practices.
Dodd filed this proposed bill to further bolster consumer protection. The first measure that Obama administration has undertaken is enactment of the Credit Card Reform Act of 2009, which aims to change the credit system in the U.S. and to save consumers from overwhelming debts because of rampant fees being imposed to cardholders.
Aside from creating a watchdog agency for consumers, this bill also proposed the creation of three other independent agencies.
Financial Institutions Regulatory Administration, which is tagged as "super-cop," will combine some functions of Federal Reserve, FDIC, OCC and OTS to regulate 1,650 commercial banks in the country.
The Agency for Financial Stability will be headed by a Presidential appointee. It shall have power to shut down large financial companies, which will affect the nation's financial system once it fails.
The National Insurance Office, meanwhile, will be created to supervise the insurance industry.
Meanwhile, Chair of Political Economy at Augusta College, Robert Wright, expressed opposition to Dodd's proposed bill. He said stripping off powers to existing agencies and giving the same to a new organization will cause uncertainty in the nation's financial sector.
Wright added that an effective way to address this financial and business situation in the country is to start investor education to young people to prevent this crisis from happening again.