Yesterday, the House Financial Services Committee held a hearing entitled “Regulatory Restructuring: Enhancing Consumer Financial Products Regulation” to discuss the administration’s proposed changes to consumer protections for investors. Testifying before the committee were:
- William D. Delahunt, Member of Congress (D-MA)
- Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard University and Chair, Congressional Oversight Panel
- William Francis Galvin, Secretary of the Commonwealth of Massachusetts
- Ellen Seidman, Senior Fellow, New America Foundation
- Edmund Mierzwinski, Consumer Program Director, U.S. Public Interest Research Group
- Edward L. Yingling, President and Chief Executive Officer, American Bankers Association
- Alex Pollock, Resident Fellow, American Enterprise Institute
- Travis Plunkett, Legislative Director, Consumer Federation of America
- Kathleen E. Keest, Senior Policy Counsel, Center for Responsible Lending
- Ralph Tyler, Commissioner, Maryland Insurance Administration on behalf of the National Association of Insurance Commissioners
- Gary E. Hughes, Executive Vice President and General Counsel, American Council of Life Insurers
- Catherine J. Weatherford, President and Chief Executive Officer, NAVA, the Association for Insured Retirement Solutions
- Cliff F. Wilson, Southeast Arizona Insurance Services on behalf of the National Association of Insurance and Financial Advisors
Chairman Barney Frank (D-MA) began the hearing by stating his concern that when broad, systemic issues are being discussed, consumer concerns are often overlooked. For this reason, Frank explained that he will support the creation of a new federal entity, the Consumer Financial Protection Agency (CFPA), intended to focus solely on financial consumer protection. Both the Committee and the panelists before the Committee agreed that consumer protection is important in the financial and investment world; however, there were many different opinions expressed regarding the optimal structure for development and enforcement of consumer protection regulations.
Representative Spencer Bachus (R-AL) cautioned that regulations intended to protect consumers could reduce consumer choice, limit innovation, and exacerbate the credit crisis. Representative Randy Neugebauer (R-TX) echoed these sentiments, stating that it is not the role of the government to make every investment safe or to keep people from losing their homes. Rather, he claimed, it is the government’s role to make sure that all investors have the information that they need to make their own informed decisions.
Professor Warren stated that merely requiring additional disclosure would not actually help consumers, since many mortgage closings involve hundreds of pages of documents and credit card applications may be lengthy and overwhelming to the average consumer. Ellen Seidman of the New America Foundation agreed, stating that additional disclosure is least helpful where it’s needed the most: where products are especially complex. She went on to state that it is essential that the new consumer protection regulator be well-funded. If not, she warned, it will do more harm than good, as those who rely on it will not be able to count on it.
Edward Yingling of the American Bankers Association urged the Committee to consider the proposed policies not only from the point of view of consumers, but also from the point of view of small community banks. These banks, Yingling claimed, were not responsible for making subprime loans and other risky investments, and are already overwhelmed by regulatory costs. The proposed regulations would unfairly target these banks, creating a massive new regulatory burden. He also expressed concern about stripping the Federal Reserve of its consumer protection role, stating that there was no way to effectively separate the regulation of a business from the regulation of its product. Several members of the Committee expressed concerns regarding the preferential treatment of government-designed financial products in the new regulatory framework, which they feared could include requiring banks to offer government-designed products before offering their own products.
Also, representatives of the insurance industry warned against overregulation. Gary Hughes of the American Council of Life Insurers stated that since the purpose of the CFPA would be to address consumer protections relating to unregulated or ineffectively regulated financial products, it should not cover insurance products, which, he claimed, “are already one of the most heavily regulated financial products in the marketplace.” He argued that subjecting insurance products to additional regulation would not be helpful, and in fact would only add an additional burden, the costs of which will be born by consumers, without any corresponding consumer benefit.”
The Committee plans to consider proposed legislation after the Fourth of July recess.