The Obama administration’s proposed Consumer Financial Protection Agency shouldn’t have authority over real estate brokers and other businesses that bill customers after services are provided, such as doctors and lawyers, says Rep. Barney Frank, chairman of the powerful House Financial Services Committee.
In a memo to fellow members of the committee — which on Wednesday kicked off three weeks of hearings on overhauling the financial regulatory system — Frank, D-Mass., reportedly outlined changes he’s prepared to make to the administration’s proposed regulatory reforms in order to push a bill through Congress.
The American Financial Services Association is coordinating opposition to the proposed Consumer Financial Protection Agency, which would regulate financial products like mortgages and credit cards — an effort the National Association of Realtors elected not to join (see story).
The U.S. Chamber of Commerce this month launched a campaign against the creation of the agency, "Stop the CFPA," claiming it would have authority over butchers and bakers who extend credit to customers.
In addition to exempting some nonfinancial businesses from oversight by a Consumer Financial Protection Agency, Frank said the agency should not have the power to require that lenders offer "plain vanilla" mortgages, the Washington Post reported.
As proposed by the Obama administration in June, the Consumer Financial Protection Agency would set standards, gather information from lenders, and provide information to consumers to protect them from deceptive lending practices. During the housing boom, no single regulator was charged with overseeing mortgage lenders, the Treasury Department said in proposing the agency (see Inman News story).
The Obama administration wants to give the agency the authority to develop a uniform mortgage disclosure form, require a "duty of care" for mortgage brokers, and ban "yield spread premiums" — rebates paid by lenders when mortgage brokers place borrowers in high-interest-rate loans.
Treasury Secretary Timothy Geithner outlined the Obama administration’s proposals for financial regulatory reform at a hearing this morning.
"If enforcement and supervisory authorities remain divided among the agencies as they are today, we will continue to see regulatory inertia and arbitrage, uneven protection, and eroding standards," Geithner said in his prepared testimony. "Just as importantly, a rule-writing agency that does not receive information from and examine institutions and address their violations will not understand how institutions operate and the burdens that regulations put on them."
At an afternoon hearing, regulators who would see their roles revamped by the reform proposals — including the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision — expressed their reservations. …CONTINUED
North Carolina Commissioner of Banks Joseph Smith, speaking on behalf of the Conference of State Bank Supervisors, warned that without regulatory reform the legacy of the financial crisis could be "a highly concentrated and consolidated industry that is too close to and intertwined with the federal government and too distant and unresponsive to the needs of consumers and communities."
The Obama administration’s plan doesn’t adequately address the system risks posed by large, "too big to fail" financial institutions, leaving open the possibility of a "bifurcated industry" dominated by large companies.
Consumers need "a diverse industry with seamless oversight, not a handful of mega-banks answering to a captive behemoth regulator," Smith said in his prepared testimony.
The Obama administration intends that the new rules developed by the agency would serve as a floor, rather than a ceiling pre-empting states from passing their own laws. States would also be empowered to enforce the strengthened federal rules.
But the banking and finance industries have been pushing for uniform standards to replace what they call a patchwork of state regulations.
Edward L. Yingling, president and chief executive officer of the American Bankers Association, said in a statement that Frank’s proposal includes "significant improvements," but that without pre-emption of state and local laws, "we will have a patchwork of laws that will result in increased costs and less credit availability."
Frank’s proposal would still create "a new agency that, while improved in design, will conflict with the safety and soundness regulators," Yingling said, with "extensive new powers to legislate its own rules, rather than applying the existing rules created by Congress."
But Smith argued that if Congress ultimately allows the agency’s rules to pre-empt state laws, or exempts some institutions like national banks from state consumer protection laws, "that would be worse than the status quo and we would be compelled to actively oppose its creation."
Smith also objected to the Obama administration’s proposal that that the FDIC and the Federal Reserve charge for examinations of state-chartered banks with more than $10 billion in assets, saying it would result in further consolidation by pushing those banks into the national banking system.
Under Frank’s proposal, the Consumer Financial Protection Agency would be funded by the Federal Reserve, suggesting banks wouldn’t have to pay new fees, the Wall Street Journal reported.
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