Yesterday, the House Committee on Financial Services held a hearing entitled “Banking Industry Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals.” The hearing focused on recent financial regulatory reform proposals and legislation, including the proposed Consumer Financial Protection Agency Act of 2009 (CFPA Act).
Testifying before the committee were the following witnesses:
- Steve Bartlett, President and Chief Executive Officer, The Financial Services Roundtable
- John A. Courson, President and Chief Executive Officer, Mortgage Bankers Association (MBA)
- Chris Stinebert, President and Chief Executive Officer, American Financial Services Association (AFSA)
- Steven I. Zeisel, Vice President and Senior Counsel, Consumer Bankers Association (CBA)
- Todd J. Zywicki, George Mason University Foundation Professor of Law and Senior Scholar, Mercatus Center at George Mason University
- Denise M. Leonard, Vice President, Government Affairs, National Association of Mortgage Brokers
- Edward L. Yingling, President and Chief Executive Officer, American Bankers Association (ABA)
- R. Michael S. Menzies, Sr., President and Chief Executive Officer, Easton Bank and Trust Company on behalf of Independent Community Bankers of America (ICBA)
Mr. Bartlett, on behalf of the Financial Services Roundtable, generally praised the Obama administration’s reform proposal as "a thoughtful starting point for discussion," while noting that "there are ways to improve ... parts of it in the legislative process.” In his testimony, Mr. Bartlett provided analysis and recommendations on a broad range of topics related to the regulatory reform proposals, including the Consumer Financial Protection Agency (“CFPA”), executive compensation, OTC derivatives, systemic risk, regulatory structure, oversight and other topics.
Mr. Courson stated that “the administration’s proposals and [the CFPA Act], are important steps on the path to regulatory reform,” but he also cautioned that “before this Committee takes action, much more work needs to be done.” In this regard, Mr. Courson, on behalf of the MBA, offered the Mortgage Improvement and Regulation Act (“MIRA”), a proposal that would “establish uniform national mortgage standards that include a comprehensive set of substantive requirements and consumer protections.” Additionally, Mr. Courson discussed “the MBA’s principles for consideration of regulatory reform” and explained the MBA’s concerns with the “establishment of a separate consumer protection regulator.” As an alternative to the current proposals, the MBA would support “a mix of some of the administration’s proposals and MBA’s MIRA proposal.”
Mr. Stinebert, on behalf of the AFSA, supported improvements in consumer protection, but also stated that “we believe the country does not need a vast new bureaucracy - and that the goals of the administration and Congress can be achieved through other ways that will be more efficient, less costly and more successful.” Mr. Stinebert discussed the AFSA’s concerns with the CFPA and provided suggestions, such as: (i) “allow time to evaluate the effects of other government initiatives”, (ii) “make current and future consumer protection rules applicable to all financial services providers by implementing national standards and (iii) “leave enforcement of rules with existing regulators and give backstop authority to the Federal Trade Commission (FTC),” amongst other suggestions.
Mr. Zeisel, on behalf of the CBA, opposed the creation of a new federal agency, insisting that “the best approach to improving consumer protection should be done in the context of the existing regulatory system.” Mr. Zeisel discussed the “significant questions” that his organization has with the CFPA Act and expressed concern that the CFPA Act "would subject retail banks to the consumer laws of the fifty states.” Additionally, according to Mr. Zeisel, the CFPA Act would result in “longer, not better disclosures” and the requirement for retail banks to offer “plain vanilla” products would ultimately hurt consumers. He concluded that “the Act will actually reduce access to financial products, reduce their transparency, and reduce bank accountability.”
Professor Zywicki stated that “the creation of a new CFPA is a very bad idea and should be rejected” and that the CFPA proposal “is premised on a fundamental misunderstanding of the causes of the financial crisis.” In his view, “there is no evidence that consumer ignorance was a substantial cause of the crisis or that the existence of a CFPA could have prevented the problems that occurred.” Instead, “the consumer side of the financial crisis … was caused not by consumer ignorance but misaligned incentives and rational consumer response to them.” He identified three main problems with CFPA: “its basis in misplaced paternalism about consumers,” “the high likelihood of unintended consequences that will result from its actions” and the creation of “bureaucratic inconsistency.”
Ms. Leonard, on behalf of the National Association of Mortgage Brokers, discussed the impact of the CFPA Act on the mortgage broker industry. According to Ms. Leonard, “any overhaul of the financial regulatory structure must adequately account for the complexity of the modern mortgage market and must endeavor to treat similarly situated market participants equally.” She expressed support for the CFPA’s “application of uniform legal standards to all [mortgage] originators,” but cautioned that “there should be some standards in place to prohibit the CFPA from imposing overly prescriptive measures to the detriment of consumers.” Ms. Leonard also supported an effort to “improve transparency, simplicity, and fairness at origination and throughout the entire life cycle of a mortgage.”
Mr. Yingling, on behalf of the ABA, supported several aspects of the regulatory reform proposal, but also stated that “the proposal is so vast that the most critical parts may not have received the emphasis they deserve.” According to Mr. Yingling, the regulatory reform should focus primarily on three areas: “the creation of a systemic oversight regulator; the creation of a mechanism for resolving troubled systematically important institutions; and filling gaps in the regulation of the shadow banking system.” Mr. Yingling also discussed the importance of traditional banking and sated that “traditional banks, operating under the current regulatory structure, did not cause this crisis. Indeed, traditional banks have continued to lend and will be at the heart of the economic recovery.”
Mr. Menzies, on behalf of the ICBA, stated that “the President’s plan takes strong steps toward addressing systemic risks posed by too-big to-fail financial firms.” Mr. Menzies noted that community banks did not cause the financial crisis and offered several recommendations from the ICBA related to the regulation of systemic risk and the structure of the regulatory system. Mr. Menzies concluded that “we must end too-big-to-fail and reduce systemic risk in order to protect consumers, local communities, our financial system and the economy from the destabilizing effects that occur when a giant institution runs into trouble.”