House Moving Legislation on Consumer Financial Protection Agency

Mortgage Banking, August 2009 | Go to article overview

House Moving Legislation on Consumer Financial Protection Agency


On June 24, House Financial Services Committee Chairman Barney Frank (D-Massachusetts) told a hearing before the full Financial Services Committee that he intends to move legislation creating a new federal agency for protecting consumers from risky financial products separately from a larger package of financial regulatory reforms. He said his committee will be "moving in July to a markup on this." He added, "This is a hearing that will lead to a markup" sometime between July 4 and before the summer recess.

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He said the new consumer-protection agency was "an important piece" of the larger package of financial regulatory reforms. He predicted that ultimately the committee would be "moving toward one bill," but it was clear he intended to move this component first.

The late June hearing was held before the Obama administration publicly released its proposal for creating a new Consumer Financial Protection Agency (CFPA). The administration unveiled its plan on June 30. Chairman Frank released a statement that day, stating: "The administration's release of its recommended language is very welcome because it removes any obstacle to the House Financial Services Committee reporting out legislation creating such an agency in July. The federal regulatory system has clearly failed to provide adequate protection for consumers, and that failure contributed to the broader economic crisis. That is why I have made the creation of the agency one of our highest priorities."

The chairman of the House banking committee proceeded to stake out ground for his committee to draft its own version of this legislation. Frank stated, "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 wall, because I believe there is a great deal of common ground between us. And with their text in hand we can now proceed to draft and approve a bill in committee before the August recess."

On July 8, Frank, along with 12 other members of the committee, became original co-sponsors of the Obama administration's bill creating the CFPA. The bill, H.R. 3126, would establish the agency as a "powerful independent agency with a range of rulemaking, information-gathering, supervisory and enforcement tools to better protect consumers who purchase financial products from banks and non-bank financial institutions."

In introducing H.R. 3126, Frank noted that the bill differed from the administration's draft proposal in a few significant respects. The bill that was introduced in the House "preserves the current federal banking regulators' role to enforce the Community Reinvestment Act (CRA)."

The June hearing gave members a chance to show their cards on other potential provisions or changes that could get incorporated into a final version of the bill that gets reported out of committee and then sent on to the House floor for a vote. The give-and-take of the hearing revealed some interesting perspectives held by committee Democrats and Republicans.

Ranking minority member Rep. Spencer Bachus (R-Alabama) said that the administration's proposal on this topic and a bill that had been introduced earlier in the House by Rep. William Delahunt (D-Massachusetts) (H.R. 1705) represent "fundamental and profound changes to the current regulatory regime." Bachus said his main question about the proposal is the "wisdom of bifurcating consumer-protection and safety-and-soundness regulation as suggested in the administration's proposal."

Bachus also suggested the new consumer-protection agency proposal may encounter trouble in the Senate. He noted the potential defection of at least one influential Democrat, and he referred specifically to Sen. Mark Warner (D-Virginia). Bachus said, "I am not alone in raising these questions," while noting that Warner said he would need "more convincing" that separating these two regulatory missions was a good idea. …

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