A strong Consumer Financial Protection Agency would even the playing field so community banks would not have to compete against unregulated mortgage bankers in offering products and services, according to the Treasury Department.
"If you are a community bank or credit union, the last thing you want to do is compete against a set of unregulated players outside the system," Treasury assistant secretary Michael Barr told reporters.
The American Bankers Association and Financial Services Roundtable oppose the proposed CFPA, claiming it will limit consumer choice and stifle competition.
Financial institutions will have to offer plain-vanilla products, Mr. Barr said, so consumers can compare and make decisions about more complex mortgages based on products they actually understand. "The market can continue to offer whatever products it wants," he said.
Mr. Barr made his comments after Treasury sent the text of a 150-page CFPA bill to Congress.
House Financial Services Committee chairman Barney Frank, D-Mass, said the legislative text will make it easier for his committee to pass a CFPA bill before the August recess.
"While the committee will, of course, exercise its own judgment on the specifics and we have already had a thorough hearing on the matter, it is helpful to have the administration's proposals as well because I believe there is a great deal of common ground between us," Rep. Frank said.