Today, the House Financial Services Committee held a hearing entitled "Perspectives on the Consumer Financial Protection Agency" to discuss the creation of the Consumer Financial Protection Agency (CFPA) generally and the draft legislation Chairman Barney Frank (D-MA) circulated this past Friday. In his opening remarks, Chairman Frank stated that he "greatly welcomed" the initial proposal to create the CFPA by the Obama Administration earlier this summer, especially in light of the Federal Reserve's "lackadaisical" oversight of consumer protection in recent years. Ranking Member Spencer Bauchus (R-AL) also applauded initiatives to enhance consumer protection, but expressed the view that the Obama Administration's proposal was "overly broad" and "rather than creating a new government agency," consumer protection reform requires "an entirely different approach." Several Republican members of the Committee also expressed their opposition to the CFPA, arguing that Chairman Frank's discussion draft still represented "government overreach" and another example of "increased bureaucracy" at the expense of the industry.

Testifying before the Committee were the following witnesses:

Panel one:

  • Hilary O. Shelton, Director, National Association for the Advancement of Colored People
  • Michael Calhoun, President and Chief Operating Officer, Center for Responsible Lending
  • David C. John, Senior Research Fellow, Thomas A. Roe Institute for Economic Policy Studies, The Heritage Foundation
  • Janis Bowdler, Senior Policy Analyst, National Council of La Raza
  • Anna Burger, Secretary – Treasurer, Service Employees International Union

Panel two:

  • R. Michael S. Menzies, Sr., President and Chief Executive Officer, Easton Bank and Trust Co. on behalf of the Independent Community Bankers of America
  • Andrew J. Pincus, Partner, Mayer Brown LLP on behalf of the U.S. Chamber of Commerce
  • Edward L. Yingling, President and Chief Executive Officer, American Bankers Association
  • Chris Steinbert, President and Chief Executive Officer, American Financial Services Association

While both panels of witnesses acknowledged the need for consumer protection enhancements in general, they were separated by their views on creation of the CFPA. Nearly all of the Panel One witnesses strongly supported the CFPA as an independent agency "with consolidated authority in one place with the sole mission of watching out for consumers across all financial services," including the need for "clear and concise rules, clearly and vigorously enforced." Ms. Bowdler stated that "Congress has a responsibility to plug the holes in a broken financial system" and needs to "change the federal oversight system" with respect to consumer protection, in particular with respect to minorities. In response to Rep. Shelley Moore Capito's (R-WV) concern that the CFPA will stifle consumer choice, Mr. Shelton stated regardless, given the abundance of "exploitation," the CFPA is necessary for adequate protection of consumers.

The witnesses on Panel Two advocated against the implementation of the CFPA, noting that it may have "significant and harmful unintended consequences" for consumers, for the business community and for the overall economy. Mr. Steinbert stated that the CFPA is mistakenly "based upon the notion that the entire financial services system is broken based upon what occurred in the housing market," when rather, "mortgages are just one of many products within the expansive consumer lending marketplace," and "many of the companies that would be subject to intensified requirements, greater restrictions and higher compliance costs under the CFPA would be those that didn’t contribute to the mortgage crisis."

Mr. Menzies was particularly concerned that the regulatory, enforcement and examination powers shifted to the CFPA would "unwisely separate consumer protection from safety and soundness enforcement," when for purposes of banks and thrifts, these types of enforcement "must co-exist" under an entity's banking regulator for efficient regulation.

On the issue of preemption, Mr. Yingling was particularly critical of Chairman Frank's discussion draft legislation, noting that the draft removes preemption of state and local laws, and "without preemption, we will have a patchwork of laws that will result in increased costs and less credit availability."

Mr. John suggested that a better approach to creating a "massive new regulator" would be to create a "Coordinating Council" of existing federal regulators and elected representatives from councils of the various types of state regulators to "coordinate the consumer activities" and "promote equal standards of consumer protection using agencies’ existing powers." In addition, the Coordinating Council would provide "flexibility in implementing regulations, subject to the oversight of the [Coordinating] Council and its expert advisors, who could issue public statements and studies" to ensure that consumers are aware of states with poor consumer protection enforcement. Several Democratic Committee members were critical of Mr. John's suggestion, noting that the concept of the Coordinating Council is just "moving chairs around."