Watch out for consumers, police financial products. It sounds like a simple mandate for a proposed new consumer protection agency.
Still, lawmakers on Capitol Hill can't seem to agree on what powers to grant this potential new watchdog.
Unable to reach a bipartisan deal, Sen. Chris Dodd, D-Conn., put forth his own proposal Monday for broader financial reforms. The consumer protection agency Dodd maps out in his plan likely won't emerge intact, but it gives an idea of the issues at hand.
Part of the problem is that there's such a wide array of financial products marketed to consumers. As it stands, regulatory authority is scattered among various federal and state agencies.
That effectively leaves gaps in oversight that have helped precipitate the meltdown, and leave the country vulnerable to further dangers, Dodd said in unveiling his proposal.
So as Congress rushes to act quickly, some questions and answers about what's at stake.
Q: What exactly would the new agency oversee?
A: The agency — now called the Bureau of Consumer Financial Protection — would be authorized to write regulations for all financial products and services affecting consumers, such as credit and debit cards, debt collection, mortgages, payday loans and prepaid cards.
It would not have authority over accountants, lawyers, real estate brokers or other professionals licensed at the state level. Nor would the proposal impose additional oversight of retailers.
Regulations could be enacted without any outside approval. However, a council representing nine other agencies could veto any rule with a two-thirds vote if the rule posed a risk to the banking system.
As with the rest of Dodd's proposal, of course, the scope of the bureau's rule-writing authority could still be tinkered with. For example, the Financial Services Roundtable, an industry group that represents companies such as Citi and JP Morgan Chase, wants the bureau to share rule-writing responsibilities with other banking regulators.
The council's veto power could also be strengthened, effectively diluting the bureau's rule-writing power, notes Travis Plunkett of the Consumer Federation of America.
Q: What enforcement powers would the Consumer Financial Protection Bureau have?
A: While the bureau's authority to write regulations would be broad, its enforcement power would be much more limited.
The bureau would have authority to enforce regulations over banks and credit unions with assets of more than $10 billion. Smaller community banks and credit unions would continue to be examined by the Federal Deposit Insurance Corp. or the National Credit Union Administration.
The new bureau also wouldn't have direct enforcement authority over nonbank financial companies, such as payday lenders, debt collectors and credit reporting agencies. Yet it would be able to invoke enforcement powers over such institutions if it could show they were large enough.
Otherwise, the enforcement responsibilities would generally remain with state regulators or the Federal Trade Commission.
Q: How much independence would the new bureau have?
A: President Barack Obama had called for a new, stand-alone agency. But Dodd's proposal, reflecting bipartisan negotiations, places the bureau within the Federal Reserve.
Those who argue against this setup cite the Fed's poor track record for protecting consumers. In particular, they point to the Fed's failure to sound the alarm on subprime mortgages and its slow actions in curbing deceptive credit card practices.
That said, the bureau outlined by Dodd would have an independent director appointed by the president and confirmed by the Senate. The bureau would also have an independent budget within the Federal Reserve.
Q: Who watches out for consumers right now?
A: It depends. Depending on the product, it could be the Federal Reserve, Federal Trade Commission, the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corp. or the National Credit Union Administration. Regulations are also set by states.
The confusion has often meant that no agency took responsibility for particular matters, Dodd said.
"If there was a watchdog on duty, it didn't bark," he said.
Not only does a new watchdog need to bark, Dodd said it also needs the power to bite.
Q: What else would the consumer protection bureau do?
A: The bureau would be charged with establishing an Office of Financial Literacy.
What's more, the bureau would establish a complaint hotline. This would simplify matters for consumers, who currently may not know where to turn to report abusive practices.
Q: What are the arguments against a more powerful consumer protection watchdog?
A: Banks and industry groups warn that too many regulations could drive up prices for consumers, discourage the innovation of new products or even eliminate existing options.
For example, payday lenders say capping interest rates could put them out of business. That would leave the poorest in a bind, they say, and perhaps with even fewer options.