An Evolving Approach to Consumer Financial Protection

House Financial Services Chairman Barney Frank (D-MA) yesterday sent a memo to his Democratic colleagues on the committee outlining areas where he is willing to compromise on the Obama administration’s proposed Consumer Financial Protection Agency (CFPA) and inviting additional Member input. In recent weeks, the Independent Community Bankers Association, the U.S. Chamber of Commerce, and other industry organizations have vehemently opposed the CFPA on the grounds that the new agency’s authority would be too broad and it would separate regulators’ consumer protection functions from safety and soundness responsibilities.

Moderate and Blue Dog Democrats on the committee have been receptive to industry criticisms, especially those of community bankers, who have a strong presence in most members’ congressional districts. It is not surprising that Frank is beginning to compromise on one of the most controversial elements of the administration’s plan, given the Chairman’s determination to enact financial reform before the end of the year.

Chairman Frank wrote that he would unveil a discussion draft “soon” and indicated it would differ from the Treasury’s draft CFPA legislation in the following ways –

  • A regulatory exemption for merchants, retailers, and other non-financial businesses. For example, retailers, doctors, telecommunication companies, law firms, and other non-bank entities that bill consumers will be explicitly exempt from CFPA regulation.
  • Removal of the administration’s “plain vanilla” requirement and “reasonableness standard.” The CFPA will not be able to mandate that financial institutions only offer plain vanilla products and services nor will they be required to “assess whether consumers comprehend the products and services” offered. Instead, Frank’s legislation will task the CFPA with improving consumer disclosure requirements.
  • A dispute mechanism in the event a CFPA ruling conflicts with a ruling of an institution’s primary financial regulator. Frank’s legislation will set up a “disinterested governing panel” to hear and resolve appeals quickly.
  • The CFPA will also supervise non-bank financial institutions that offer consumer financial products and services in a way that is “no less burdensome or comprehensive than that governing traditional banks and thrifts.” Banks will not be assessed fees for the cost of CFPA oversight of non-banks, and the Federal Reserve will supplement the CFPA’s funding.
  • The CFPA will be run by a “single Director, who will be advised by a Consumer Financial Protection Oversight Board,” comprised of the Federal Reserve, Comptroller of the Currency, FDIC, Office of Thrift Supervision, National Credit Union Administration, Department of Housing and Urban Development, Federal Trade Commission, and the Chairman of the state liaison committee of the federal Financial Institutions Examination Council.
  • Financial literacy will be an important part of the CFPA’s mission. 

Read Chairman Frank's CFPA discussion draft.

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Comments (1) Read through and enter the discussion with the form at the end
phil - September 24, 2009 1:07 AM

Rep. Barney Frank has been consistent in taking populist stands while bilking his constituency's banking interests.

It's the same mindset that promulgated the lax mortgage schemes, which birthed exotic investment products, which delivered hundreds of billions in tax-payer funded succor to ...
Banking Interests.

If there's anything to watch when this guy & his peers open wide, it's your wallet.

- Phil

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