The Obama Administration wants to require consumer financial service industry providers to offer simplified “plain vanilla” products; its proposed Consumer Financial Protection Agency (CFPA) may set new rules requiring them to do so.The CFPA would be established by the Consumer Financial Protection Agency Act of 2009 (the Act), recently delivered by the Administration to Congress as part of its plan to restructure financial services regulation by year end. The CFPA would be charged with protecting consumers of “credit, payment and other consumer financial products and services” from “abuse, unfairness, deception or discrimination and regulating such products and services.” “Any person who engages directly or indirectly in financial activity, in connection with a consumer financial product or service” would be covered by the proposed Act.

The CFPA would have sole authority to promulgate and interpret regulations under existing consumer financial services and fair lending statutes such as TILA, ECOA, and the FDCPA. The CPFA would also have supervisory, examination and enforcement authority over all persons covered by the statutes it would implement and would create a “floor” for consumer protection, with its rules overriding weaker state laws, but leaving states free to enact stronger measures. To promote simplicity, fairness and transparency in consumer transactions, the act would authorize the CFPA to define standards for “plain vanilla” products that are “simpler and have straightforward pricing,” and “require all providers and intermediaries to offer these products prominently, alongside whatever other lawful products they choose to offer.”

The “plain vanilla products” proposal responds to complaints by consumer rights advocates that consumers have been harmed by complicated products and confusing fee and penalty practices. However, one size does not fit all, and the cost involved in forcing industry to provide “plain vanilla products” may ultimately limit access to credit which the current variety of consumer financial products has provided.

The CFPA also is proposed to have authority to “place tailored restrictions on product terms and provider practices” … “where efforts to improve transparency and simplicity have proved inadequate to prevent unfair treatment and abuse, if the benefits of such restrictions outweigh the costs.” In light of such potential restrictions on product terms, forcing the industry to offer “plain vanilla” products as well might be viewed as excessive.