House Financial Services Chairman Barney Frank has dropped a provision
from forthcoming legislation that would have
required financial firms to offer simple, "plain
vanilla" alternatives to the complicated products that helped create the recession. The provision, highly popular with liberals, would
have been incorporated into the mission of the White House's proposed Consumer Financial Protection
Agency. By dumping the idea, Frank drew uncharacteristic criticism from quite a few liberal bloggers and
economists. Ordinarily considered a liberal hero
and champion of financial reform, Frank is thought to have dropped the provision in order to build support among conservative Democrats and increase the bill's chance
of passing. But that won't mollify the liberal pundits who saw "plain vanilla" as critically important.
- Why 'Plain Vanilla' Matters Kevin Drum
didn't hide his anger. "The more I mull, the more pissed off I get.
Yes, this would be a very direct government intrusion into the
financial market, but that's the whole point," he writes. "The 'plain vanilla' requirement would accomplish something the
financial industry hates: it would make it easy for consumers to
compare products. Even if you're planning to buy something
non-vanilla, the price of the vanilla product provides a baseline that
makes it easier to compare companies to each other and easier to see
exactly how much you're paying (and what extra terms you're agreeing
to) for the more complex products. That's good for consumers."
- Dropping Proposal Only Hurts Banks Mike Konczal argues that industry should love the provision. "Rather than a creeping socialist plot, the vanilla contract is
actually creating the conditions where innovation could flourish, where
we could see consumers and markets do what they do best – express
choices over what they want to spend their money on, what goods and
services they would like to bundle with their default contracts, and
have businesses compete to provide those services," he wrote. "I don’t think it was ever explained very well by anyone in the
administration, and perhaps I should have done a better job trying to
explain how it is less adversarial than it looked on first examination."
- Not a Disaster Tim Fernholz suggests the switch wasn't so bad, and maybe politically necessary. "The loss of plain vanilla isn't the end
of the world: The agency can still right rules to ensure that
standardized, understandable contracts are used by lenders so that
consumers are still protected," he writes. "There are still a lot of moving parts in this bill, and a lot of
opposition to surmount. These concessions are mostly smart politics,
not undermining policy, that you have to be leery about going forward,
especially in the Senate."
- 'Beginning of the End of Meaningful Regulatory Reform' Felix Salmon laments, "There's no good reason for this capitulation, except for the financial
lobby has so effectively captured Congress that no reform would be able
to get through with such a common-sense provision in place," he wrote.
"I fear that by the time Congress is done, the Consumer Financial
Protection Agency won’t be able to protect consumers at all — and
that's assuming it'll even exist."
- 'Score One for the Banks' Ezra Klein calls the news "depressing," explaining, "That 'plain vanilla' provision was among my favorite bits of the bill.
It was an elegant effort to help people navigate an industry that preys
on ignorance and uncertainty." But Klein conceded,
"The 'plain vanilla' provision was never likely to do that much. The
fact that a bank had to offer a basic card didn't mean they had to
advertise it, or steer you toward it. But the politics of the 'plain
vanilla' provision were great, and the presence of such products could
- Weakened, Watered Down, Declawed CFPA Noam Scheiber writes
that Frank is "weakening the Consumer Financial Agency," but that he
"may be making the minimal number of changes he needs to get it
through the financial services committee, given the opposition from
community banks and their conservative Democratic water-carriers."
Scheiber calls the change "worrying," adding, "this feels like it's
moving us in the wrong direction, to say the least." Edward Harrison provocatively headlines his post,
"Obama Caves to Pressure on Consumer Financial Protection." Harrison
writes, "Serious reform is not going to be forthcoming – not on
healthcare or in financial services. Am I wrong here?" Consumerist's Chris Walters slams
the changes as making the CFPA "declawed" and "watered down." Walters
writes, "The American Bankers Association seems a lot happier with it,
which doesn't sound like a good thing."
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