The Credit Market Fallout #3 – More New Regs from the OTS

I understand that all the financial industry regulatory agencies in Washington DC have their own institutions to manage, but it sure would be nice if they could all get together for the sake of the consumer and have similar (or the same) regulations governing mortgages. I still think the consumer needs to be protected against lending institutions that put profit before prudent lending practices and leave the rest of us holding the bag. From the WSJ.

The federal regulator of thrifts is working on a proposal that could lead to a ban on lending practices the agency labels "unfair and deceptive," several people briefed on the matter said.
If adopted, the proposal would be the most aggressive regulatory response this year aimed at tightening oversight of financial institutions, although it would cover just some of them.

Some of the practices under scrutiny could include prepayment penalties on adjustable-rate mortgages and higher interest-rate charges on one credit card if a borrower misses payments on a separate credit card.

The Office of Thrift Supervision, a division of the Treasury Department, has the authority to ban "unfair and deceptive" practices for the roughly 830 federally insured thrifts it regulates. The Federal Reserve has sole authority to issue bans on unfair and deceptive practices on the roughly 7,000 federally insured banks.

Its scrutiny could spread over multiple business lines. Federally regulated thrifts tend to specialize in residential mortgages, which means the agency could outlaw certain home-loan practices. But many of the OTS-regulated companies offer other products, such as credit cards. OTS-regulated companies held $1.49 trillion of assets during the first quarter.

Federal bank regulators issued guidelines last month that would discourage banks from certain high-risk lending practices, but the guidance doesn't carry the weight that a formal rule would.

The Fed also is under pressure to use its authority to ban certain practices, using an authority it was given by the Federal Trade Commission Act. House Financial Services Committee Chairman Barney Frank (D., Mass.) said yesterday that he would give the Fed until this fall to use its powers in this area. If it doesn't, he threatened legislation giving the Fed's authority to the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.