Consumer Protections

We'll conclude our look at the pending financial reform bill with some of the consumer protections that have been included. One provision that looks rather toothless is that shareholders would be able to conduct a nonbinding vote on executive compensation for any corporations in which they hold stock. That doesn't look likely to have much of an effect, but there is also a provision calling for companies to have executive compensation set by independent directors, which might have some impact, depending on who those directors are.

There's also the creation of a federal regulator to oversee consumer issues in areas such as mortgages and checking accounts. One corner of the economy in which such a regulator might make a difference is in the shady world of payday loans, with their interest rates that can reach several hundred percent on an annual basis. The Senate bill puts this regulator under the Federal Reserve, while in the House version, the regulator would be independent. It's hard to see what the end difference would be, but since both versions call for the regulator, it's almost certain to happen.

Perhaps most significant are the investor protections being discussed. The guiding principle is that banks and other financial institutions should retain some of the risk for the products they sell, rather than pushing it all off on investors. This would keep them from selling off the such things as baskets of subprime mortgages without keeping part of the securities (and risk) for themselves. There are also provisions curtailing some of the problems we've seen with rating agencies, including allowing investors to sue them. These are all things that, if they work, you won't see much evidence of them - if disaster happens again, you know they will have failed.