WASHINGTON – President Barack Obama reversed decades of lax oversight of the financial industry Wednesday by signing a landmark overhaul of regulations, but he still faces a major task – appointing a director for the powerful new agency charged with protecting consumers from unscrupulous deals.
The law dramatically toughens oversight of the industry, from Wall Street’s executive suites to the Main Street storefronts of mortgage brokers and payday lenders.
But it is the Consumer Financial Protection Bureau that will have the most direct effect on average Americans by creating rules to help ensure that bankers and other financial firms treat their customers fairly.
Even before Wednesday’s signing, a battle was brewing over who should be the bureau’s first director. That appointee will head an agency with authority to write and enforce new rules for mortgages, credit cards and other consumer products.
A leading candidate is Elizabeth Warren, a Harvard law professor and chairwoman of the watchdog panel overseeing the $700 billion Troubled Asset Relief Program, the bailout fund for the financial industry. But her outspoken consumer advocacy and sharp criticism of some TARP spending has made her a controversial figure who could have trouble getting confirmed for the job.
Other potential candidates are Michael Barr, assistant treasury secretary for financial institutions; Martin Gruenberg, vice chairman of the board of the Federal Deposit Insurance Corp.; and Gene Kimmelman, an official in the Justice Department’s antitrust division.
The sweeping new law reverses three decades of financial deregulation that many experts believe set the stage for the financial crisis in 2008. To prevent a repeat, the bill enacts the most sweeping clampdown on the industry since the creation of the Securities and Exchange Commission and the FDIC in the 1930s.
Besides creating the consumer bureau, the bill establishes a council of regulators to monitor the financial system for major risks; imposes tough regulations on complex financial securities known as derivatives; grants shareholders a nonbinding vote on executive compensation; and gives the government authority to seize and dismantle teetering firms whose failure would pose a danger to the economy.
On Wednesday, Obama put the spotlight on consumers in a speech before the signing, touting changes that, for instance, end hidden fees in mortgages and mandate easier-to-understand financial disclosures.
“All told, these reforms represent the strongest consumer financial protections in history,” Obama said. “And these protections will be enforced by a new consumer watchdog with just one job: looking out for people – not big banks, not lenders, not investment houses.”
MoveOn.org and other liberal groups are eagerly backing Warren, and Democrats in the House and Senate are circulating letters of support.
But Senate Banking Committee Chairman Christopher Dodd, D-Conn., said this week that there was “a serious question” about whether Warren could be confirmed by the Senate, where 60 votes would be needed to overcome an expected Republican-led filibuster.