In a speech to the Credit Union National Association yesterday, Assistant Treasury Secretary Michael S. Barr signaled that the Obama administration is continuing its push to create the Consumer Financial Protection Agency (CFPA). Although Assistant Secretary Barr acknowledged that the Administration had made progress, he urged that comprehensive reform was necessary to create jobs, strengthen the financial system and grow the economy and warned that “delays in addressing failures of consumer markets is deeply damaging to banks and credit unions, not just consumers.”
Responding to criticisms that the CFPA would interfere with “prudential regulation” of providers of consumer financial services, Assistant Secretary Barr stated that the CFPA would “strengthen the banking system, not weaken it.” He argued that “more transparent markets, markets where nonbanks are subject to oversight, markets with fewer unfair or deceptive practices – these are markets in which banks and credit unions will be stronger.” In addition, Assistant Secretary Barr noted that, in 2008, the Bush administration had proposed the assignment of consumer financial markets regulation and bank safety and soundness to separate entities. He argued that the CFPA was the most effective way to provide accountability and effectiveness to the system and that “proposals to create a separate and independent consumer financial protection regulator are neither partisan nor ideological; they are bi-partisan and pragmatic.”
To address concerns that prudential regulators would lose insight into the weaknesses of institutions if consumer compliance examinations were conducted by the CFPA, Assistant Secretary Barr stated that “recent history suggests it is subordination of consumer financial markets regulation, not its separation, that poses the far greater risk to safety and soundness.” He noted that the proposal would require the CFPA to coordinate its efforts with prudential regulators and would “be more likely to bring bank weaknesses to the attention of prudential regulators than a system in which consumer compliance supervision is subordinated to prudential supervision.”
In July, Treasury first submitted proposed legislation to establish the CFPA, which was first unveiled in the Obama Administration’s White Paper that proposed the adoption of sweeping reforms to the federal regulatory structure for banking, insurance and securities firms. In October, the House Financial Services Committee approved the Consumer Financial Protection Agency Act of 2009. In December, the House of Representatives passed the Wall Street Reform and Consumer Protection Act, which included provision for the creation of the CFPA.