House Votes for Sweeping Wall Street Reform and Consumer Protection To Help Prevent Future Financial Meltdown

Rep. Brad Miller Writes Key Parts of the Legislation

Washington, D.C. – Today, the U.S. House of Representatives responded to the nation’s financial crisis by passing the comprehensive Wall Street Reform and Consumer Protection Act to ensure that taxpayer-financed bailouts of Wall Street will never happen again and addressing the root causes of last fall’s financial crisis.

The industry argues that this legislation will stifle innovation, limit consumer choice, and drive up the cost of borrowing for consumers,” said Rep. Miller. “It’s the same tired argument the industry has used against all meaningful consumer protection legislation for mortgages, credit cards and overdraft fees. No consumer chose to get cheated on a mortgage or credit card. This bill forbids the reprehensible business practices that caused the worst economic crisis since the Great Depression.”

Miller and Rep. Bill Delahunt (D-MA) were the first Members of the House to propose the creation of a new, independent financial regulatory agency devoted solely to protecting the public from unfair and abusive financial products and services. In March, they joined Senators Richard Durbin (IL) and Chuck Schumer (NY) in sponsoring the landmark bicameral legislation that would serve as the model for consumer financial protection component of the bill that passed today. Subsequent to introducing the bill, Miller worked closely with officials at the Treasury Department and the Administration to pave the way for its inclusion in President’s financial regulatory reform “blueprint,” which was announced in June. This fall, Miller worked with Chairman Frank and Rep. Mel Watt (NC) to steer it through the Financial Services Committee and the House.

Rep. Miller and Rep. Mel Watt (D-NC) wrote and pushed the Mortgage Reform and Anti-Predatory Lending legislation bill they first introduced in 2003, which passed the House earlier this year and is incorporated in today’s bill. The legislation outlaws many of the egregious practices that marked the subprime lending boom, and it would ensure that mortgage lenders make loans that benefit the consumer. It would establish a simple standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold.

“This legislation will allow lenders to make an honest living and make credit available to consumers who need it, but it will not allow lenders to make a killing by taking advantage of consumers,” said Rep. Miller. “The difference between an honest living and a killing would be an enormous savings to consumers.”

HIGHLIGHTS OF H.R. 4173, THE WALL STREET REFORM AND CONSUMER PROTECTION ACT :
INCREASES CONSUMER PROTECTIONS
• The bill will create the Consumer Financial Protection Agency (CFPA), a new federal agency solely devoted to protecting Americans from unfair and abusive financial products and services. Last year’s crisis demonstrated that deceptive products – such as predatory mortgages and hidden credit card fees – can not only damage the livelihoods of American families, they can destabilize the entire economy.
• The CFPA will act as an independent watchdog and play a key role in preventing another economic meltdown. Just like the FDA does for medical safety, it will set basic safety standards on financial products and prevent big banks from making a quick buck at the expense of hardworking families. The CFPA will have the power to ban deceptive industry tactics such as teaser rates that are used to lure in customers and make huge profits. It will make sure that contracts for credit cards and mortgages are fair and comprehensible. Big banks and credit card companies will no longer be able to take advantage of the “fine print” to deceive consumers. The CFPA will keep watch over a number of financial industries, such as payday lenders and mortgage originators, which to date have escaped oversight.

PROTECTS FUTURE HOMEOWNERS

• To help rebuild the American economy, the House is taking action to outlaw many of the egregious industry actions that fueled the subprime lending boom and led to the nation’s highest foreclosure rate in decades.
• H.R. 4173 includes comprehensive mortgage reform and anti-predatory lending measures that will outlaw the kinds of irresponsible and abusive loan practices that played a key role in the current financial meltdown. The House passed these measures (H.R. 1728) in May by an overwhelming vote of 300-114.
• To restore the integrity of mortgage lending industry, this bill will make sure that the industry follows basic principles of sound lending, responsibility, and consumer protection, ensuring that:
- borrowers can repay the loans they are sold, and irresponsible borrowers can no longer lie their way into loans and take on too much debt.
- mortgage lenders make loans that benefit the consumer and are prohibited from steering borrowers into higher cost loans;
- the secondary mortgage market, for the first time ever, is responsible for complying with these common sense standards when they buy loans and turn them into securities.

REINS IN IRRESPONSIBLE EXECUTIVE COMPENSATION PRACTICES

• Gives shareholders a “say on pay” – an advisory vote on pay practices including executive compensation and golden parachutes.
• It enables regulators to ban inappropriate or risky compensation practices and requires financial firms to disclose any compensation structures that include incentive-based elements.

ENDS TAXPAYER BAILOUTS AND “TOO BIG TO FAIL”

• Ends “too big to fail” financial firms and ensure that taxpayers are never again left on the hook for Wall Street’s reckless decisions.
• Creates an inter-agency oversight council that will identify financial companies that are so large, interconnected, or risky that their collapse would put the entire economy at risk. These systemically risky firms will be subject to heightened oversight, standards, and regulation.
• Establishes an orderly process for shutting down large, failing financial firms like AIG or Lehman Brothers in a way that ends taxpayer-funded bailouts and minimizes the impact on the financial system.
• If a large institution collapses, the bill holds Wall Street - not taxpayers - accountable. Any costs associated with dismantling a failed firm will be paid first from the company’s assets at the expense of shareholders and creditors. Any additional costs will then be covered by a “dissolution fund” pre-funded by large financial companies.

SAFEGUARDS INVESTORS

• Strengthens the SEC’s powers so that it can better protect investors and regulate the nation’s securities markets.
• It responds to the failures to detect the $65 billion Madoff Ponzi scheme and the $8 billion Stanford Financial investment frauds by ordering a study of the entire securities industry that will identify needed reforms and force the SEC and other entities to further improve investor protection.