WASHINGTON President Barack Obama's plan to create a federal agency to protect consumers from tricky or hazardous financial products may never make it through the Congress, if the bankers have their say.
Financial services companies are coming up with cash nobody knew they had to fight the proposal, which would put hidden credit card fees on a par with faulty bike helmets and flammable pajamas.
Consumer advocates are asking Congress to create such an agency, which would focus on financial products like checking accounts and mortgages, regardless of what kind of financial company was issuing them.
Currently, different federal agencies oversee different kinds of banks, and their rulings on bank products can differ from agency to agency and bank to bank. The proposed new agency would review credit cards, insurance products, bank accounts and other financial tools for their clarity and safety.
"Although a Consumer Financial Protection Agency would not be a panacea for all current regulatory ills, it would correct many of the most significant structural flaws that exist," two long-time consumer advocates told a congressional hearing on June 24.
Travis Plunkett of the Consumer Federation of America and Edmund Mierzwinski, with the U.S. Public Interest Research Group, laid out the case for creating such an agency before the House Committee on Financial Services.
Harvard law professor Elizabeth Warren, whose highly publicized early warnings about consumer debt made her a rock star in the current credit-collapse, testified that a new watchdog agency could be the cure for what ails America's debt-strapped households.
As chairman of the Congressional Oversight Panel of the Troubled Asset Relief Program, she could well be in line to head the new agency, if it is ever created.
And that's the key, for most consumers. It may never happen. Even if it does, it could take many months -- or even years -- for any rulemakings to come out of it. Between now and then, the financial services industry can be expected to try jumping the gun -- cramming as many egregious fees, tricks and traps into their products as they can get away with.
Here then, is your guide to being your own regulator while you wait. In lieu of your own federal agency, police the financial offers that come into your house and review the ones you've already accepted.
-- Take advantage of existing government advice. It's true that financial regulators allowed some cracks to develop that were big enough to swallow our entire system of credit and millions of bankrupt or foreclosed-upon consumers. But there is some solid information for consumers available on government websites, like these.
The Federal Trade Commission lays out your rights when it comes to debt collectors, credit scoring and other lending issues at www.ftc.gov/credit. The Federal Deposit Insurance Corporation links to consumer alerts about identity theft, bank overdraft fees and more here. The Federal Reserve Board of Governors offers credit card calculators and foreclosure resources here
All of these sites are of an educational nature, rather than consumer complaint gateways, but the more information you have, the easier it is to protect yourself.
-- Read everything, the junkier it looks, the better. It's hard to keep up with the mail from your credit card issuer, but every correspondence could be a term-changing notice. Issuers sometimes send important notices in envelopes that look like something you'd throw away unopened. Some issuers aren't sending notices: Their only notice that they've cut your credit limit could be a new number on your bill.
-- Keep cushions everywhere. Even with money tight, try to keep a little extra in all of your accounts; it keeps the bankers from pouncing. Keep an extra $100 in your checking account and forget about it; you're less likely to bang into punitive overdraft fees when you use your debit card. Use less than the full borrowing power of your credit card; you'll avoid over-limit fees. Pay your bills a day or two early, to avoid late fee traps. Consider all of this a form of self-insurance.
-- Use old-fashioned letters when applying for a new account. Credit card issuers don't exactly show you all of the terms upfront when they offer you a new card. They typically show a range of rates that you might qualify for, as well as open-ended balance transfer offers without locking themselves into any specific balances.
If you think you want the card, apply for it by mail, the old fashioned way, and specify the credit limit and interest rate you want in the letter. State that if those limits and rates aren't available, you don't want the card. That will keep you from ending up with credit cards on your file that aren't any good to you.
-- Complain, if you think you've been wronged. Financial services companies do want to keep your business, and they don't like to be investigated. Start by specifically requesting that any unreasonable charges be reversed. If you feel you've been dealt with unfairly in any financial transaction, ask to be made whole and warn that you will complain to your state's regulator. Then do it.
-- Learn to love vanilla. Boring, old-fashioned financial products, like fixed-rate mortgages and bank certificates of deposit, are back in vogue. The less complex the instrument, the fewer nooks and crannies there are where fees and other traps can hide. Avoid money-market mutual funds that have the highest yields; they probably are putting extra risks in their portfolios to accomplish that. The old tried and true keep-it-simple advice holds up now as well as it ever did. If a financial product is so complex, the person offering it is trying to convince you that you can't understand it, walk away.
(Editing by Steve Orlofsky)