African Americans stand to benefit from the new financial rules being pushed by President Barack Obama today, said Dr. Cecilia Rouse, a member of the White House Council of Economic Advisers. The new reforms, Rouse added, will help protect blacks from predatory lending, regulate payday loans and other alternative banking products, and help end complex financial paperwork and hidden fees such as bank overdraft charges.

A big part of that plan is the creation of an agency to protect consumers, as well as new rules that regulate the transactions of Wall Street banks, while providing an orderly way to wind down institutions that fail using bank-financed funds -- and all at no cost to taxpayers. That portion of the plan has come under the most scrutiny, because some fear it will be easier for banks to get bailed out and, therefore, increase their penchant to take risks.

"This effort to enact Wall Street reform is important, because every day we don't act, the same system that led to the bailouts remains in place. If we don't change what led to the crisis, we doom ourselves to repeat it," Rouse said.

President Obama took his message to Wall Street today. Before an audience of the heads of the largest Wall Street banks, Obama said the regulation being proposed should not be feared by those who intend to operate fairly.

"The only people who ought to fear the kind of oversight and transparency that we're proposing are those whose conduct will fail this scrutiny," President Obama said.

African Americans and other minorities were hit particularly hard by the financial crisis that almost collapsed the nation's economy. In 2005 and 2006, 53 percent of the loans given to African Americans were subprime. Blacks were three times likely to receive higher-priced loans than whites.

That has had a severe impact on black wealth, as homes are most Americans' most valuable asset. More than 57 percent of the subprime loans granted in 2006 are in foreclosure or pre-foreclosure. At the same time, African American home ownership gains are decreasing. By 2004, the black home ownership rate was 49.4 percent. In 2008, it dropped to 47.5 percent and may be dipping even lower.

"One of the things that was unique about this housing bubble and this huge extension of credit is that companies were offering these teaser mortgages to consumers, offering credit cards to individuals who ... in ordinary times, would not have been eligible for this credit," said Rouse. "So what really happened is they were going after the most vulnerable consumers and those vulnerable consumers were the low-income consumers. In that sense, African Americans, along with other low-income individuals, were the canary in the coal mines. ... They were the ones that the companies were making the most money off of and [they were] going after [them] in a way that was irresponsible."

"That's why this consumer protection agency is so important to prevent that," she furthered. "It's also why financial literacy is important. It's important that consumers learn to understand the arcane language... and understand what they are getting in to."

In addition to regulating big Wall Street banks, payday loan institutions and check-cashing businesses will also be regulated. Some of the interest rates and fees charged by these organizations amount to astronomical interest rates that consumers are not aware of or don't understand.

"This agency would have oversight over traditional banks, but for the first time have oversight [over] alternative- financial services, such as check cashier and payday lenders, so we can help families avoid those hidden costs, hidden fees and exorbitant costs," said Rouse.

The goal is to lure more African Americans and minorities into the mainstream banking system.

"Part of what this agency will be doing is trying to rein in some of the practices that banks currently engage in that make participating in the regular banking system distasteful to a lot of African Americans, such as enforcing the rule that stops banks from enrolling customers in expensive overdraft programs. There will be a push to get more households to be in the regular banking system," Rouse said.


Both Rouse and Obama rejected criticism that the fund to provide for the orderly dismantling of failed banks will encourage bankers to take more risks. Obama said the criticism was nothing more than a "good sound bite" and "not factually accurate."

Rouse said the president is "agnostic" about how the fund should be created, but is insistent on its existence.

"I do reject the idea that by having a mechanism for unwinding banks that it will generate more of it in the future. The point is that what happened a year and a half ago is that these large firms, AIG for example, got in to trouble. There was no mechanism to unwind them in an orderly fashion, and so we had to inject taxpayers dollars in. You can't just declare a bank bankrupt without causing a disruption to the consumers they serve," Rouse said.

"Because the taxpayer was paying, it creates the moral hazard for those bankers to say, 'Hey, if we get in to trouble in the future, we know the taxpayer will bail us out.' What the president has said is, 'No. That will not happen again.' The banking industry will pay themselves if they get in to trouble like this again. It will be at no cost to the taxpayer.This actually will make the bankers more accountable and take away this moral hazard."

Republicans have balked at voting for the bill, but Congress will move on the issue, Rouse said.

"The president hopes that politics can be put aside for the good of the American people, and that Democrats and Republicans can find common ground and move together. But no matter what, we will move forward."