The Obama administration is set to create an agency to help consumers safeguard against deceptive lending practices, according to a Treasury document.
Later this week, the Consumer Financial Protection Agency is set to initiate an overhaul of the financial regulations allowing them the authority to create rules for banks and non-bank companies on how to manage and inspect for compliance, as well as issue fines and penalties.
“Lax consumer protections contributed significantly to the current financial crisis,” the document said. “The financial crisis, in turn, revealed inadequacies in consumer and investor protection.”
Senate Banking Committee Chairman Christopher Dodd, last week added that the proposal will give obligatory authority to help prevent the predatory lending practices the U.S. economy is currently fighting against mortgage brokers and banks.
The new agency will be able to restructure the current mortgage laws that mandate institutions to disclose to consumers the risks of the loans and provide products that are simple to understand to the average consumer.
Unjust lending practices will be regulated by the agency, including yield spread premiums and prepayment penalty restrictions which are currently regulated by the Federal Reserve and protect individuals from “un unfair and deceptive practices.”
Many lawmakers, including Dodd and Barney Frank, House Financial Services Committee Chairman, have held the Federal Reserve responsible for not utilizing its authority to halt these predatory lending practices.