WASHINGTON — At its core, President Obama's overhaul of regulations for the financial industry seeks a fundamental change: Make the federal bureaucracy work for consumers, not just Wall Street. And Wall Street, not surprisingly, doesn't like it.
Striking a populist tone, Obama complained in a White House speech Wednesday that average Americans were often baffled by such intricacies as the terms of credit cards, home loans and other financial products. That confusion helped fuel the subprime mortgage meltdown that sent the U.S. and foreign economies reeling.
Much of his reform package involves complex changes to the inner workings of the financial system, but Obama said that better consumer protection -- a priority -- was a key to avoiding future financial crises.
Such safeguards could reach far down the line to such everyday matters as bank overdraft protection. A new agency would have the power to write federal rules that, for instance, prohibit prepayment penalties on loans, require better disclosures, order financial companies to offer easily understood options, and levy fines and penalties for lenders that don't comply.
"The most unfair practices will be banned," Obama said. "Those ridiculous contracts with pages of fine print that no one can figure out, those things will be a thing of the past. And enforcement will be the rule, not the exception."
Consumer groups hailed the plan.
"This is a dramatic shift in the focus of financial regulation, which should lead to a credit marketplace which is easier for consumers to understand and safer," said Travis Plunkett, legislative director for the Consumer Federation of America.
But banks and other Wall Street firms that earn billions of dollars on consumer financial products quickly attacked the proposal, setting the stage for what is likely to be a hard-fought legislative battle.
"We intend to take our case to Congress to explain why we believe adding new layers to a broken regulatory system is not the answer," said David Hirschmann, president of the Center for Capital Markets at the U.S. Chamber of Commerce.
The emphasis on consumer safeguards is part of the blueprint Obama unveiled formally Wednesday for the most dramatic changes in financial rules since the Great Depression.
It calls for tough new requirements on companies whose failure would threaten the economy, new oversight of complex financial derivatives and stepped-up rules for hedge funds and private equity firms.
