The broad powers the Obama administration would vest in a proposed Consumer Financial Protection Agency — and the intention to allow states to draft their own, tougher rules for mortgage lenders — continues to trouble the lending industry.
A draft bill floated by Rep. Barney Frank, D-Mass., would create an agency along the lines of the proposal put forward by the Obama administration in June, while attempting to address some lending-industry concerns.
Unlike the Obama administration’s proposal, for example, Frank’s bill would not give the agency the power to require that lenders offer "plain vanilla" mortgages.
Although it might seem counterintuitive, requiring lenders to offer plain vanilla loans would harm, not help, community banks, if there were also higher regulatory hurdles to offering other types of loans, said Michael Menzies Sr., chairman of the Independent Community Bankers of America.
Any incentive the agency creates, intentionally or otherwise, to offer such loans "will amount to a disincentive for community bankers to offer anything but those products," Menzies said in his prepared testimony to Frank’s House Financial Services Committee at a hearing Wednesday.
Frank’s draft bill also makes it clear that certain businesses that are not part of the financial industry — including real estate agents and brokers — would be exempt from the Consumer Financial Protection Agency’s authority.
Title insurers and other settlement services providers, however, would fall under the agency’s umbrella. It would take over from the Department of Housing and Urban Development "all powers and duties" now vested with HUD relating to the Real Estate Settlement Procedures Act (RESPA).
The U.S. Chamber of Commerce has claimed that as proposed by the Obama administration, the Consumer Financial Protection Agency would regulate a wide range of businesses that have little connection to the financial industry, such as butchers and bakers who extend credit to customers.
Groups representing banks welcomed some of the changes in Frank’s proposal, but were still alarmed that, like the Obama administration’s plan, the bill would protect the ability of states and local government to enact their own, stricter fair-lending regulations. Critics say that will create a patchwork of laws that will increase industry costs and reduce the availability of loans.
"We clearly have national markets for consumer financial products and services, and we need to be able to apply national standards," said Edward Yingling, president and CEO of the American Bankers Association, in his prepared testimony.
Yingling cited loan disclosures as an example of the need for federal preemption of state laws. Both Frank and the Obama administration propose that the Consumer Financial Protection Agency draft a single mortgage disclosure form that meets the requirements of both the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). …CONTINUED