Senator Barney Frank, chair of the House Financial Services Committee (“FSC”), has issued a memorandum to the members of the FSC addressing certain issues raised by various news publications. The substance of the memorandum is as follows:

Some inaccuracies have appeared in the press about institutions exempted from the reach of the Consumer Financial Protection Agency in the House-passed financial reform bill. For instance, yesterday’s New York Times reported that it “exempted smaller community banks, credit unions, retail merchants …”. Not true. All of those institutions will be subject to all rules issued by the agency with respect to the extension of credit. They also will be subject to agency enforcement. The exemption for smaller financial institutions is only with respect to examination which will continue to be the responsibility of the institutions’ prudential regulators. However, the CFPA will have back-up inspection authority and may independently take enforcement action. And even this exemption is limited to institutions with less than 2% of bank assets.

Importantly, the new agency will also have authority with respect to the now lightly or unregulated institutions such as pay day lenders and check cashers firms which are especially important to lower income families. It also will have authority over independent mortgage brokers and lenders that led the industry in issuing subprime and abusive option ARM mortgages.

Consumer protection has long been a weak link in our system of financial regulation and the meltdown of the subprime mortgage market is only the most dramatic example of the consequences of our failure in this area. The President’s position on closing this gap is of great importance.

Leading consumer protection advocates unanimously support the President. Harvard professor Elizabeth Warren said when the House bill passed, “the banks lost today.” That same day, Travis Plunkett from the Consumer Federation of America said that “The CFPA will allow consumers to shop or take out a loan knowing that there is an agency looking out for their best interests.”

Click here to read the memo as it appears on the FSC’s website.