Yesterday, the House Committee on Energy and Commerce's Subcommittee on Commerce, Trade, and Consumer Protection held a hearing entitled “The Proposed Consumer Financial Protection Agency: Implications for Consumers and FTC”. The hearing examined the Administration’s proposal to create a new agency responsible for consumer protection with regard to financial products and services.
Testifying before the subcommittee were:
- Jon Leibowitz, Chairman, Federal Trade Commission
- Michael Barr, Assistant Secretary for Financial Institutions, Department of Treasury
- Gail Hillebrand, Senior Attorney and Manager, Financial Services Campaign, Consumers Union
- Stephen Calkins, Associate Vice President for Academic Personnel and Professor of Law, Wayne State University
- Prentiss Cox, Associate Clinical Professor of Law, University of Minnesota
- Rachel E. Barkow, Professor of Law, New York University School of Law
- Chris Stinebert, President and CEO, American Financial Services Association
Subcommittee Chairman Bobby L. Rush (D-IL) opened the hearing by stating that “I believe that the FTC should remain intact as it is currently constituted, and that this Committee and subcommittee should continue to oversee and authorize the FTC.” In his view, the FTC “operates best as a lone hawk. From high above, the agency can survey the marketplace and swoop down on predators that deceive unsuspecting and misinformed consumers.” Committee Chairman Henry A. Waxman (D-CA) echoed those sentiments, stating that “we must ensure that the Federal Trade Commission (FTC) is strengthened, not weakened, by any changes.”
Mr. Leibowitz focused on the FTC’s current authority regarding the financial services industry, its priorities in this current economic environment, and its general comments on the proposed Consumer Financial Protection Agency (CFPA), noting that the FTC has authority and responsibility under many consumer protection statutes that cover financial services and protects consumers at every stage of the credit life-cycle using four primary tools: law enforcement, rulemaking, consumer education and research and policy development. He stated that FTC agrees with the proposed legislation’s focus on providing agencies such as the FTC with the necessary resources to effectively utilize its authority to protect consumers and to expand its enforcement and rulemaking authority, but believes it is important to ensure continual vigorous and effective protection continue throughout the creation of the Consumer Financial Protection Agency.
Mr. Barr’s testimony focused on the importance of establishing clear federal accountability for the protection of consumers, and the authority, leadership, resources, and incentives to effectively carry out that responsibility. He stated that the current system is flawed and has resulted in ineffectual oversight and enforcement, and that the solution is the CFPA and the establishment of one accountable and independent agency, specifically tasked with the financial markets and with expertise in the same, in conjunction with a strengthened FTC.
Ms. Hillebrand testified on behalf of the Consumers Union and her testimony was joined by several other consumer groups. Ms. Hillenbrand expressed support for both the CFPA and the FTC. According to Ms. Hillebrand, “the CFPA is essential because it will address many of the deep structural problems that have been barriers to effective regulation and oversight in the market for financial products and services offered to consumers.” She also noted that “current oversight is divided by type of entity even when the entities offer competing products” and supported the creation of “a single federal Consumer Financial Protection Agency with exclusive authority in all areas except enforcement.”
Mr. Calkins, a former General Counsel of the FTC, did not formally support or oppose the bill, however, he did express concern over the proposed legislation in that it “would fundamentally change the FTC’s role.” According to Calkins, “although I cannot quantify the benefits of this legislation, I can observe that it appears likely to cause an important agency that is working well to lose a substantial part of its staff, its authority, and its mission.” Ultimately, Calkins urged “caution and care and examination of alternatives…. Legislation as sweeping as this should not to be enacted in haste.”
Professor Cox emphasized that “[c]entralization of rule-making authority for federal consumer finance laws in the CFPA, combined with the new rule-making powers of the CFPA and a focus on the needs of consumers in the promulgation of those rules, is the right approach,” a sentiment echoed by Mr. Stinbert. Professor Cox then highlighted that a problem with the current regulatory structure is that the regulators were not focused on the needs of consumers, but rather focused on the needs of the industry they regulated.
Professor Barkow recommended that, to aid the agency succeed, there should be no more than 3 members of the same political party on the CFPA. Professor Barkow warned that the absence of such a membership limitation “could lead to a politically-polarized agency that dramatically changes positions from one extreme to another with each new presidential administration.”
The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing regarding the CFPA on Tuedsdsay, July 14, at 9:00 a.m.