Consumer Financial Protection Agency Bill Clears House Panel

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Oct. 23, 2009.

The House Financial Services Committee voted 39 to 29 in favor of legislation to create a new Consumer Financial Protection Agency (CFPA), a central pillar of President Obama’s financial regulation overhaul plan. Under the bill, consumer protection authority would be transferred from the Federal Reserve Board and other regulators to the new agency. The bill faced strong opposition from Republicans, who argue that it would create a new government bureaucracy that would limit consumer choice and restrict credit.

Committee Chairman Rep. Barney Frank, D-Mass., speaking to reporters, described the bill as a “major breakthrough,” and predicted that it would “only get better going forward” as it moves toward a vote in the full House. Even in some of the areas where compromise was made, Frank added, “every bank and every credit union in America will be subject to the rulemaking of this agency.” He noted that a whole range of activity currently not subject to legislation, such as payday lenders, check cashers, and remittances, will now be under CFPA oversight.

Ranking Member Rep. Spencer Bachus, R-Ala., said the bill marked the “largest expansion of financial services regulation since 1933.”

Obama issued a statement saying approval of the bill “sends an important signal to the American people that we will not stand by and allow big financial firms and their lobbyists to mobilize against change.”

The bill, H.R. 3126, would grant the CFPA the responsibility to monitor any new financial products or services that could harm consumers and the economy. It would be able to write rules to regulate, restrict or ban such products, and would also have the power to set guidelines so that companies issue clear and fair product disclosures.

Under the bill, all nonbank financial institutions that provide consumer financial products and services will be required to register with the CFPA. However, merchants, retailers and other nonfinancial businesses that extend credit directly to consumers for the purchase of goods and services will be exempted from CFPA oversight.

H.R. 3126 does not contain a provision proposed by the administration that banks be required to offer standard, “plain vanilla” products. The bill also allows banks and thrifts with less than $10 billion in assets and credit unions with assets under $1.5 billion to be exempt from CFPA examinations. The CFPA would be allowed to send an examiner to participate in exams conducted by the prudential regulator, and would also be able to remove a prudential regulator if it determined that the regulator failed to adequately carry out consumer compliance supervision.

Meanwhile, H.R. 3126 would require national banks to comply with state laws unless a state law is determined to have a discriminatory effect on national banks and “prevents or significantly interferes” with their ability to conduct their business. Federal regulators would be required to consult with the CFPA to determine that consumers will still be protected under federal law if the state law is preempted. Furthermore, state attorneys general would not be prevented from enforcing state laws against national banks under the legislation.

The American Bankers Association said that despite improvements to the bill, it still remains opposed to the legislation. Chief among ABA’s concerns are restrictions on preemption standards for national banks and savings associations and “the very broad, ill-defined authority that is granted to this new agency that could be used to justify essentially any regulatory action.”

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