Questions Abound in Hearing on Consumer Protection Agency

A House Financial Services Committee hearing on the proposed creation of a consumer protection agency posed more questions than it answered about how the new regulator would function and how disputes would be resolved between it and existing regulators.

Also left unclear was how the agency would be funded and whether it would be responsible for investor protection - a current responsibility of the Securities and Exchange Commission.

Despite the significant number of issues still to be resolved, committee chairman Barney Frank, D-Mass., said he remains committed to moving quickly on the legislation. He said he intends to split pieces of regulatory reform into several bills, one of which will encompass the proposed new consumer protection agency, and pass at least some of them by the end of July.

Though several Democrats voiced support for the concept of a consumer protection agency, there were signs that they may break with the White House when it comes to the new regulator's authority. While the Obama administration's plan would keep investor protection at the SEC, it remains unclear if lawmakers will go along with that part of the plan.

The current theory "is that we will leave securities enforcement to the SEC and I believe the investor protection is a bigger part of the SEC's mission than consumer protection is for the [Office of the Comptroller of the Currency]," Frank said.

But when he asked those appearing before the panel if anyone disagreed with keeping those protections separate, Edward Yingling, the president and chief executive of the American Bankers Association, said the ABA opposes allowing the SEC to keep its investor protection role for securities because banks compete against products it regulates. "We think that they ought to be subject to the same oversight," he said.

Frank responded: "That's a reasonable point." Frank said he would continue to examine the issue. "I do think those are things we'll have to look at," he said.

Other critical issues were largely unexamined by the panel, including funding. The administration's plan is fuzzy on the math for financing the new agency, suggesting a hybrid of appropriations and industry-supported funding.

Elizabeth Warren, a Harvard law professor who testified before the committee, suggested the industry supplement funding through fees of perhaps a penny a year for each auto loan and a nickel a year for every mortgage.

Pre-emption of states was another issue. The Obama plan would let the consumer protection agency establish a federal minimum standard for consumer protection, but allow states to write tougher restrictions. State banking agencies would also have the power to enforce federal and state laws against all state and national banks.

But Frank said, "I do not think there is any likelihood that we are going to increase preemption."

Stacy Kaper is a reporter for the American Banker.

For reprint and licensing requests for this article, click here.
Bankruptcy
MORE FROM BOND BUYER