Declaring that “the American people will never again be asked to foot the bill for Wall Street’s mistakes,” President Obama on Wednesday signed landmark legislation providing the most sweeping overhaul of financial rules since the Great Depression.
The new law reverses decades of deregulation, aiming to provide greater government protection for consumers and reduce risky practices at financial institutions to prevent a repeat of the financial crisis.
Its controversial centerpiece is a new Consumer Financial Protection Bureau, which will have broad authority to write new rules for mortgages, credit cards, payday loans and other consumer products and make sure firms are adhering to them.
The law also grants new powers to federal officials to oversee the economy for signs of trouble, break up large financial firms if they pose a danger to the economy and, for the first time, broadly regulate the shadowy and complex world of financial derivatives.
If another financial crisis were to develop, the law gives regulators the power to seize and dismantle a firm on the brink of failure if its collapse would cause financial havoc.
Obama and supporters said those powers would “put a stop to taxpayer bailouts once and for all.”
“Unless your business model depends on cutting corners or bilking your customers, you’ve got nothing to fear from reform,” Obama said, shortly before signing the legislation into law amid congratulatory handshakes from key lawmakers and cheers from a large audience at the Ronald Reagan Building and International Trade Center.
Obama proposed the legislation a year ago, and supporters battled heavy opposition from Wall Street and nearly all congressional Republicans to push it into law.
Republicans argued that the new powers would lead to more bailouts, not prevent them. And immediately after the signing, a top House Republican, Mike Pence of Indiana, echoed the call last week by Minority Leader John Boehner (R- Ohio) to repeal any overhaul Obama signed into law
“This financial-services reform is nothing more than a permanent bailout of Wall Street that will restrict credit, kill jobs, raise taxes and expand government control of the private sector,” Pence said.
The dramatically conflicting views of the legislation set the stage for midterm elections this fall, when it promise to become a major issue as Republicans hope to make significant inroads into the Democratic majority.
Obama offered his own swipe at Republicans during the signing ceremony, calling them “a partisan minority determined to block change” whose opposition had to be overcome along with “the furious lobbying of an array of powerful interest groups.”
To highlight the new consumer protections, Obama was joined on stage by two average Americans.
Andrew Giordano, a retired Vietnam veteran from Locust Point, Md., was hit with hundreds of dollars in overdraft fees because his bank had automatically enrolled him in expensive overdraft protection of which he was unaware. The new consumer bureau will have the power to restrict or outlaw such programs.
And Robin Fox, a seventh-grade science teacher from Rome, Ga., had complained to Obama in a letter last year that her credit-card company retroactively increased the rate on her existing card balance from 10.9% to 17.9%, even though she had been paying her bill on time.
Such arbitrary rate hikes are now banned under new credit-card legislation passed by Congress, and the consumer bureau will be charged with enforcing the law once it is up and running in about a year.
“With this law, unfair rate hikes like the one that hit Robin will end for good. And we’ll ensure that people like Andrew aren’t unwittingly caught by overdraft fees when they sign up for a checking account,” Obama said. “All told, these reforms represent the strongest consumer financial protections in history.”
Among the several hundred attendees at the signing ceremony were top administration officials, financial regulators and congressional Democratic leaders who helped push the legislation to adoption.
They included Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, House Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D- Nevada) and the two committee chairmen after whom the legislation was named, Sen. Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.).
Also attending were people who were the driving force behind key aspects of the overhaul — Elizabeth Warren, the Harvard law professor who conceived the idea of a consumer financial protection agency, and former Fed Chairman Paul Volcker, who pushed to prohibit banks from trading more than a small amount of their assets for the sole benefit of the firm.
After the signing, Obama walked down to the front row of the audience to personally congratulate Warren, Volcker and other supporters, patting them on the back and shaking their hands.
Warren, who chairs the watchdog panel overseeing the $700-billion bailout fund, is a leading candidate to be nominated by Obama as director of the new consumer bureau.
When asked about whether she wanted the job, Warren said she could not comment.
Several consumer advocates also attended the ceremony, but there were few representatives from the financial industry. Among them were Citigroup Chief Executive Vikram Pandit and Camden Fine, head of the Independent Community Bankers Assn.
Much of the financial and business community opposed the legislation, arguing its new regulations were too strict.
“This is nothing more than a financial regulatory boondoggle,” said Thomas Donohue, president of the U.S. Chamber of Commerce, which fought intensely against the legislation. “Such a broad, sweeping bill epitomizes a law with unintended consequences that creates more uncertainty for American businesses.”