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To besure, most of the largest, most interconnected, and most highly
leveraged financial firms in the country were subject to some form of
supervision and regulation by a federal government agency. But those
forms of supervision and regulation proved inadequateand
inconsistent.First, capital and liquidity requirements were simply too
low. Regulators did not require firms to hold sufficient capital to
cover trading assets, high-risk loans, and off-balance sheet
commitments, or to hold increased capital during good times to prepare
for bad times. Regulators did not require firms to plan for a scenario
in which the availability of liquidity was sharply curtailed. Second,
on a systemic basis, regulators did not take into account the harm that
large,interconnected, and highly leveraged institutions could inflict
on the financial system and on the economy if they failed.Third, the
responsibility for supervising the consolidated operations of large
financial firms was split among various federal agencies. Fragmentation
of supervisory responsibility and loopholes in the legal definition of
a “bank” allowed owners of banks and other insured depository
institutions to shop for the regulator of their choice.

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example, the CFPA could adopt a procedure under which a provider
petitions the CFPA for a determination that its product’s risks were
adequately disclosed by the mandatory model disclosure or marketing
materials. The CFPA could approve use of the mandatory model or
marketing materials, or provide a waiver, admissible in court to defend
against a claim, for varying the model disclosure. As a further
example, if the CFPA failed to respond in a timely fashion, the
provider could proceed to market without fear of administrative
sanction on

that basis. The provider could potentially shorten the mandatory
waiting period if it submitted empirical evidence, according to
prescribed standards, that its marketing materials and the mandatory
disclosure adequately disclosed relevant risks. The CFPA should have
authority to adapt and adjust its standards and procedures to seek to
maximize the benefits of product innovation while minimizing the
costs.Disclosure rules today assume disclosures are on paper and follow
a prescribed content, format, and timing; the consumer has no ability
to adapt content, timing, or format to her needs.

For instance, if you find the perfect scholarship, but it's only
awarded every other year, make sure this is the year it's going to be
awarded before you do all of that work! Are there minimum GPA
requirements? What about the award date? Will the Financial Aid be
awarded before the date you need to pay your bills?

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Prior to the current financial crisis, a number of federal and state
regulations were in place to protect consumers against fraud and to
promote understanding of financial products like credit cards and
mortgages. But as abusive practices spread, particularly in the market
for subprime and nontraditional mortgages, our regulatory framework
proved inadequate in important ways. Multiple agencies have authority
over consumer protection in financial products, but for historical
reasons, the supervisory framework for enforcing those regulations had
significant gaps and weaknesses. Banking regulators at the state and
federal level had a potentially conflicting mission to promote safe and
sound banking practices, while other agencies had a clear mission but
limited tools and jurisdiction.

Most critically in the run-up to the financial crisis, mortgage
companies and other firms outside of the purview of bank regulation
exploited that lack of clear accountability by selling mortgages and
other products that were overly complicated and unsuited to borrowers’
financial situation. Banks and thrifts followed suit, with disastrous
results for consumers and the financial system.This year, Congress, the
Administration, and financial regulators have taken significant
measures to address some of the most obvious inadequacies in our
consumer protection framework. But these steps have focused on just
two, albeit very important, product markets – credit cards and
mortgages. We need comprehensive reform. For that reason, we propose
the creation of a single regulatory agency, a Consumer Financial
Protection Agency (CFPA), with the authority and accountability to make
sure that consumer protection regulations are written fairly and
enforced vigorously. The CFPA should reduce gaps in federal supervision
and enforcement; improve coordination with the states; set higher
standards for financial intermediaries; and promote consistent
regulation of similar products.Consumer protection is a critical
foundation for our financial system. It gives the public confidence
that financial markets are fair and enables policy makers and
regulators to maintain stability in regulation. Stable regulation, in
turn, promotes growth, efficiency, and innovation over the long term.
We propose legislative, regulatory, and administrative reforms to
promote transparency, simplicity, fairness, accountability, and access
in the market for consumer financial products and services.

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