That’s a step the lending industry has long advocated, arguing that requirements for separate TILA and RESPA loan disclosures only confuse consumers.
But if state and local governments aren’t preempted from drawing up their own rules, homebuyers will still be faced with "page after page of disclaimers and disclosures about all the differing state and local laws," Yingling said.
Yingling also claimed that the language proposed by the Obama administration to create a Consumer Financial Protection Agency is so vague it would create an agency "with vast and unprecedented new powers" to "legislate its own rules."
Consumer groups like the Center for Responsible Lending say they support the creation of a single federal consumer protection agency — but in addition to, not instead of state and local regulations.
Michael Calhoun, president of the Center for Responsible Lending, said in his prepared testimony that the group won’t support any proposed overhaul of the regulatory system that calls for federal preemption of state and local laws.
Court decisions that allowed federally chartered lenders to claim exemption from state fair lending laws contributed to some of the worst excesses in lending during the boom, he said. Federal banking regulators not only defended lending practices that hurt consumers, but intervened to prevent state authorities from taking action themselves, Calhoun maintained.
During the housing boom, federal banking regulators at the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC) "came to view the banks they regulate as their paying customers," Calhoun said. OTS and OCC were reluctant to take action that would cause their "customers" to switch their charter to another regulator, he said.
In 1994, Congress gave the Federal Reserve Board the authority to prohibit unfair or deceptive practices by all financial institutions, including non-bank mortgage lenders. But the Fed didn’t move to exercise that power until July 2008, Calhoun said.
"It is unrealistic to suggest that federal enforcement alone is adequate," Calhoun said. "Consumer protection is a traditional state function, and states have considerably more experience in enforcement than the federal financial regulators. This right should be an essential feature of this reformed system."
Yingling said the ABA supports numerous regulatory reforms, including the creation of a systemic risk oversight agency, and a system for resolving problems created when companies become "too-big-to-fail." Regulatory gaps for derivatives, hedge funds, mortgage brokers and others should be closed, Yingling said, and consumer protections improved.
But there’s "simply no justification for imposing significant new burdens on heavily regulated banks that never made one subprime loan, nor contributed to the causes of the financial crisis," Yingling said.
Banks are already subjected to 1,700 pages of regulations and guidelines for their dealings with consumers, he said.
The fundamental weakness of the Home Ownership and Equity Protection Act — the 1994 law that increased the Federal Reserve’s oversight powers — was that there was no provision for enforcement against non-bank lenders, Yingling said.
Calhoun rejected the argument that banks didn’t participate in the excesses of the boom.
Four of the top seven alt-A loan originators during the housing boom had federal charters, Calhoun said, enjoying "both the benefits of preemption, and light touch (federal) regulation."
"Neither federally chartered banks nor their federal supervisory regulators can credibly deny that they did not participate" in the mortgage meltdown, he said.
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