Inroads on Consumer Protection? Enforcement, Product Choice, Preemption and Liability on Table

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Byline: Stacy Kaper

WASHINGTON - Industry lobbyists accept that they are unlikely to stop the creation of a new consumer protection agency, but many are confident they can curtail its powers.

Before the House Financial Services Committee votes on the issue next week, industry representatives are working to convince lawmakers that new agency should not have the power to examine and enforce rules against banks. They are also trying to soften language requiring lenders offer "plain vanilla" products before alternatives. Also on the table: ensuring state consumer protection laws are preempted and lenders are shielded from legal liability.

Lawmakers are listening.

"We are looking at several things," Rep. Mel Watt, a co-sponsor of the bill and the House Financial Services Committee's monetary policy subcommittee chairman, said in an interview Monday. "What we are trying to figure out, No. 1, are they legitimate concerns? And if they are, how do you address them in a way that doesn't create more disruption?"

At the top of his list, the North Carolina Democrat said that he believes the committee needs to consider how to divvy up powers among consumer protection and safety and soundness regulators, how enforcement will work, how conflicts would be resolved, what the costs are, and how to handle personnel shifts from the existing agencies to the new one.

But while the banking industry - and its regulators - are lobbying hard to leave current enforcement authorities over financial institutions alone and merely let the new agency write consumer protection regulations, Watt is not convinced.

"You've got to put rule writing and enforcement in the same place," he said. "There are people who are out there advocating separating the two, but I don't think you can separate those two functions without doing jeopardy to what you are trying to do."

But Watt said lawmakers are still weighing "if any of the existing regulatory agencies should retain any consumer protection responsibilities."

"If so, how do you keep those things that get retained from having potential conflicts with the part of the same issue that gets transferred?" he said. "It may be better for all or none in that context of consumer protection issues."

Still, industry representatives said they are continuing to press the point, arguing that giving a consumer agency enforcement authority will leave lenders caught in the middle between the new agency and existing supervisors.

"The fundamental question is if we are going to split prudential regulation and consumer protection. I believe that's the direction that the chairman is headed," said Bill Himpler, an executive vice president for the American Financial Services Association. "We believe as long as that's the direction that is a fundamental flaw. ... Everything is nibbling around the edges on a fundamentally flawed approach."

Himpler contends that lawmakers have expressed reservations about what happens to existing consumer protection laws and potential complications that a transition to a new agency might incur. "We believe members have concerns about the scope of the new authority and what that does to existing regulations such as Truth in Lending, HOEPA, UDAP and others," he said. "It gives the new CFPA the primary responsibility over a number of the provisions in each of those regulations. At the same time, it's going to take a new agency three to four years to get up and running. So what happens in the interim? This raises more questions."

Scott Talbott a senior vice president with the Financial Services Roundtable, agreed many lawmakers share industry's concerns with the bill. …