Administration Seeks Agency to Protect Consumers

June 30, 2009

   by Congressional Quarterly

The Obama administration Tuesday continued to pressure Congress to enact a broad overhaul of the financial regulatory system, sending draft legislation to Capitol Hill that would create an agency charged with protecting consumers of financial products such as credit cards and mortgages. The new agency, the Consumer Financial Protection Agency, is a central piece of the administration’s overhaul proposal, which congressional leaders hope to enact by the end of the year. The 152-page draft legislation released by the Treasury Department would create an independent regulator to oversee a wide range of consumer financial products and services, including those offered by credit, savings and payment providers. The legislative language would require the new agency to monitor the market continuously for risks to consumers, and publish significant findings at least once a year. “The most unfair practices will be banned,” President Obama said in a statement. “Those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past. And enforcement will be the rule, not the exception.” The proposed new agency also would be required to judge the balance between regulation and cost – an effort to address concerns that new regulations could lock up credit or impose a burden on banks and other financial institutions. Explicitly stating this goal is something that could go a long way toward appeasing a financial services industry that has been up in arms over the proposal, calling the idea duplicative and questioning the rationale for its creation. “Our major concerns are two-fold,” Edward L. Yingling, the chief executive and president of the American Bankers Association, told members of the House Financial Services Committee on June 24. “One is that we really don’t believe you can separate the business from its products and that to have these two regulators will put banks in the middle where they’ll be pushed and pulled, and we gave a number of examples about that.” But the administration has argued the new agency would largely help streamline the regulatory process, noting that it would coordinate efforts by the Department of Housing and Urban Development and the Federal Reserve to create a single mortgage disclosure form – something consumer advocates and regulators both say would simplify the often burdensome process of obtaining a mortgage loan. Despite industry objections, the proposal to create the agency – in one form or another – will almost certainly make its way into the final overhaul bill in both chambers. Barney Frank , D-Mass., and Sen. Christopher J. Dodd ., D-Conn., the chairmen of the banking committees in the House and Senate, have both announced their support for the idea. “It’s going to happen,” Frank said last week. “You all keep writing about it like this is some kind of issue. It’s not. It’s going to happen.” Dodd wasted little time reiterating his support for the idea. “The administration is addressing the colossal failures that led to the economic crisis with a bold and aggressive plan,” Dodd said in a statement. “Creating an independent agency whose sole focus is protecting consumers - be it credit card holders, anyone with a bank account, or families with mortgages or student loans – is really the key to creating the foundations for a stronger economy.” Treasury released an outline of its plan June 17 but Hill leaders and the financial services industry have been eager to see the details. The draft legislation would give the new agency the authority to oversee banks and non-banks alike, giving it the ability to gather information on loans, products and services from all aspects of the financial system. All rulings and judgments made by the agency would be considered the regulatory floor, so as not to supersede state laws, Treasury said in a statement. The draft legislation would give the agency a significant amount of enforcement power, giving the new regulators the authority to write rules and implement existing statutes for consumer protection, and create consistent rules for unregulated and lightly regulated institutions. The agency also would supervise and examine institutions to ensure compliance and enforce compliance through orders and penalties. Its director would be appointed by the president and confirmed by the Senate, and five-member board would include the head of the National Bank Supervisor – the Obama administration’s proposed prudential banking regulator. Getting the legislation into law this year will be a difficult task given the already crowded congressional agenda. Frank said last week in an interview that he was frustrated with the slowness of sending language to the Hill, indicating that his staff could not fully move forward without the specifics of the administration’s proposal. Initially hoping to put his final regulatory overhaul bill on the floor before the August recess, Frank has pushed back his timeline, planning to mark up separate pieces of the final bill by the end of July, with the intention of sending a final bill to the House floor in September. The consumer protection agency is expected to be one of the pieces marked up by Frank’s committee before lawmakers leave town at the end of July. Dodd, now one of the leaders in the battle to overhaul the health care system, plans to take up the financial overhaul in the fall.
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