House Democrats Offer Scaled-back Consumer Financial Protection Agency Proposal

Demonstrating that Congress intends to put its own stamp on financial reform legislation, House Democrats on July 8 introduced their own scaled-back version of the new consumer protection agency proposed by President Obama. Coming on the heels of the president’s release of draft legislation to create a new independent regulator for financial products and services, House Democrats responded quickly on Wednesday by unveiling the Consumer Financial Protection Agency Act of 2009 (HR 3126).

The bill was introduced by House Financial Services Committee Chairman Barney Frank (D-MA). While it retains many of the key provisions outlined within the White House bill—including the transfer of consumer financial regulations to the CFPA in order for the new agency to write and enforce rules on financial products of both banks and non-banks—it is notable for several significant differences from the Obama proposal that may limit the CFPA’s jurisdiction.

In particular, the House bill preserves the current regulatory enforcement structure for the Community Reinvestment Act (CRA), which is overseen by the Office of the Comptroller of the Currency (OCC), the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) in order to ensure that depository institutions are engaging in fair lending practices to low-income communities. Additionally, unlike the President’s bill, which assumes a merger with OTS and OCC to form a new prudential regulator titled the National Bank Supervisory (NBS), H.R. 3126 makes no mention of NBS. Frank’s press release goes on to state that the details of the President’s merger proposal will be considered “at [a] later date.”

Over the next month, the CFPA proposal is all but assured to consume the schedule of the House Financial Services committee, as Chairman Frank has stated his intentions of marking up H.R. 3126 by the end of July. However, serving as a harbinger for the difficulties that may lay ahead on Capitol Hill, a handful of Democrats on the House Energy and Commerce committee, including former Chairman John Dingell (D-MI), expressed serious concerns yesterday regarding the efficacy of stripping the Federal Trade Commission (FTC) of its oversight authority over non-bank financial institutions, such as mortgage brokers and finance companies, and transferring such functions to the CFPA. During a subcommittee hearing entitled "The Proposed Consumer Financial Protection Agency: Implications for Consumers and FTC,” Dingell also highlighted the sensitive committee jurisdictional issues that will arise by narrowing the mission of the FTC, which will ultimately narrow the jurisdiction of the House Energy and Commerce Committee.

Testifying on behalf of the Treasury, Assistant Secretary Michael Barr reiterated to lawmakers that proper oversight requires “one agency for one marketplace with one mission.”

“The lack of federal supervision of non-bank providers is an open invitation to the less responsible actors that seek darker corners to ply their dubious practices,” said Barr in his opening testimony. “These actors are willing to gamble that the FTC and state agencies lack the resources to detect and investigate them. This puts enormous pressure on banks, thrifts, and credit unions to lower their standards to compete—and on their regulators to let them.”