House Financial Services Committee chairman Barney Frank, D-Mass., said he is working with small banks and credit unions to craft a bill that will create a new consumer protection agency.
Many financial services groups and the U.S. Chamber of Commerce have lined up against the creation of a new agency that would write and enforce the rules for mortgage and other forms of consumer lending. But chairman Frank is trying to get small depositories on his side as his committee prepares to mark up a Consumer Financial Protection Agency bill on Sept. 23.
"We are working with them on legitimate concerns and I am confident we will get a tough enforcement agency to protect consumers," Rep. Frank said in an interview with Bloomberg News. The Independent Community Bankers of America (ICBA) has been talking with Rep. Frank. "We have offered our ideas. We will have to see how far he goes," said ICBA's top lobbyist Steve Verdier.
The Financial Services Roundtable opposes the idea of stripping the federal bank regulators of their consumer protection functions and giving the CFPA enforcement and rulemaking authority over national banks. "The better answer to consumer protection is to amend the charters of the existing prudential regulators, giving consumer protection parity with safety and soundness regulation," Roundtable president and chief executive Steve Bartlett said.
In related news, The Shadow Financial Regulatory Committee is "sympathetic" to the Obama administration's plan to consolidate the consumer protection function of the banking regulators into a new agency that would set the rules for banks and nonbank mortgage lenders.
The academic group noted that the federal banking regulators did not do a "great job" of protecting consumers during the subprime lending crisis, and consumer protection will never be a "core mission" for the bank regulators. It will always take a "back seat" to safety and soundness concerns, committee member Robert Litan said.
The Brooking Institutions senior fellow noted, however, that shadow regulators would make several changes to the Consumer Financial Protection Agency (CFPA) bill that has been introduced in the House. One important change would give the CFPA's lending rules preemption over state rules. The current bill allows the states to enact and enforce tougher rules.
"At least in rulemaking, there ought to be [federal] preemption," Litan said. The bill also gives the CFPA authority to prevent unfair and deceptive and abusive practices.
According to Litan, unfair and deceptive practices are well defined in case law, but abusive practices is new and should be dropped. "We think it is unnecessary and gives too much discretion to the agency," he added.