Associated Press
With all the talk about the need for greater economic oversight, what new protections can people expect when it comes to their day-to-day finances?
The question is still mostly up in the air, but there are some hints about what reforms could be around the corner.
Among the more notable actions so far is the clampdown on the credit card industry last month. The law signed by President Barack Obama requires card issuers to notify customers in advance of any interest rates hikes and spell out the cost of making only minimum payments over time.
“Given what we’ve seen on credit cards, it looks like this administration is putting a bigger emphasis on protecting the consumer,” said Philipp Schnabl, an assistant finance professor at New York University’s Stern School of Business.
The push for increased transparency comes at a time when household budgets across the country are being upended by an unraveling economy. Many blame a lack of regulation for the recession, which had its genesis in subprime mortgages some experts say should never have been issued.
Here’s a look at some new regulations that could be on the horizon.
Consumer protection
Toys, furniture, clothing and other household items are regulated by the Consumer Product Safety Commission. But no such federal agency exists for financial products.
That could change with a proposal currently making the rounds on Capitol Hill, which will probably include the creation of a consumer protection authority for the industry. It’s not yet clear what the scope of the agency’s powers will be, but the idea is to give it rule-making and enforcement authority over products such as credit cards and mortgages.
A formal announcement by the Treasury Department is expected in coming weeks.
Investor protections
One idea that had been shopped around by the Treasury Department was to combine two existing bodies —- the Securities and Exchange Commission and the smaller Commodity Futures Trading Commission —- to create a new agency aimed at protecting investors.
Lately, Treasury appears to be backing off that idea.
Mary Schapiro, head of the SEC, has expressed concern about handing over the oversight of investor products such as mutual funds to another agency. Such a move would diminish the SEC’s powers, she has said.
Tax preparers
The Internal Revenue Service announced last week it’s working on new rules that could require paid tax preparers to be licensed. IRS Commissioner Doug Shulman said the idea is to improve tax compliance and reduce fraud.
Between 2006 and 2008, the IRS says it initiated more than 600 investigations of fraud among tax preparers. But when the IRS detects a fraudulent return, the taxpayer —- not the preparer —- pays the penalties.
Shulman said he wants better leverage to make sure tax preparers act ethically, not only to improve enforcement, but to ensure that taxpayers get quality help in preparing their returns.
More on credit cards
The credit card legislation signed into law last month put some key protections into place. But some more specifics could be on the way.
In addition to the new rules about rate hikes, the law directs the Federal Reserve to determine what constitutes “reasonable and proportional” penalty fees. This could potentially lead to a cap on the dollar amount card issuers could charge for late fees.
Additionally, the Federal Reserve was ordered in the law to study the fees card issuers charge small businesses.
The credit card law also states that any advertisement for a free credit report must disclose that people can get free reports under federal law.
A number of recently introduced bills also seek to provide added protections, such as a cap on interest rates for all forms of credit. It’s too early to say whether those bills will make their way to Obama’s desk, however, said Travis Plunkett, legislative director for the Consumer Federation of America.
Insurance industry
Insurance companies are generally regulated by states, meaning there’s a patchwork of varying rules governing the companies across the country. The Treasury Department is considering the creation of a federal charter for insurance companies, although it’s not clear whether it would be for all forms of insurance or just some.
One possibility is the creation of an optional federal charter, which would let insurers pick whether they’re regulated by a state or the federal government.
Another approach is a uniform federal charter, which could provide stricter regulations across the board. Depending on how it’s executed, experts say this could improve efficiency for insurers and ultimately lower costs for consumers.
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