President Barack Obama has taken up the mantle as champion for the average American. The economic collapse has been stackedâ€”rightly soâ€”upon the shoulders of the cadre of corporations and institutions that lent massive sums of money to individuals that had little hope of ever repaying those funds. The corpses of subprime mortgages, tucked into nearly indecipherable bundles with lower risk instruments, floated down the financial stream, dissolving confidence in security and bond markets, crumbling the foundation of construction and sending lending to a screeching halt.
Now it is a new era of consumer protections, where credit card companies are brought to trial over inflated interest rates and investors demand goggles to peer into the murky waters of security instruments. As part of Obama's larger, ambitious overhaul of the regulatory system, the establishment of the Consumer Financial Protection Agency (CFPA), covered in NACM's eNews on July 7, has been tweaked and re-introduced into committee as bill H.R. 3126. The goal of the CFPA would be to oversee the structure and issuance of various loans, as well as the sale of financial products and services to consumers such as bank accounts and some credit-related services, like debt collection and loan modification.
Currently, the Federal Trade Commission (FTC) handles these responsibilities in its Bureau of Consumer Protection, of which creditors should be familiar because of the agency's "Red Flags" Rules. But there is a view among some advocates that consumers aren't receiving effective enough considerations and a new model must be employed. The FTC, with the CFPA edging in on its turf, is reviewing legislation already offered by the Obama Administration and being debated in a House Energy and Commerce subcommittee hearing.
"Recent reports about the lack of mortgage mortifications and increases in various fees only reinforce the need for this bill, which is already very clear," said House Financial Services Committee Chairman Barney Frank (D-MA), who introduced the bill that finely tunes the Obama outline for the CFPA. "I intend to mark this up by the end of July, and we have already begun to hold hearings on this subject and have had a great deal of consultation among members."
Congress breaks in August, but Frank is confident that the bill will ultimately provide greater protections for consumers while not further burdening legitimate bank activities.
Frank's version of the CFPA differs from the one originally outlined by the White House by preserving the role of federal banking regulators in the enforcement of the Community Reinvestment Act (CRA). For now, Frank only refers to the Office of the Comptroller of Currency (OCC) and the Office of Thrift Supervision (OTS) as regulating bodies, instead of the National Bank Supervisory (NBS), which the Obama Administration envisions as a new prudential regulator.
"Many of the rulemaking, enforcement, education and research functions of the CFPA are functions that the FTC currently performs with respect to entities under its jurisdiction," testified FTC Chairman Jon Leibowitz before the Subcommittee on Commerce, Trade and Consumer Protection. "The proposal is designed to consolidate these responsibilities, which currently are divided amongst a number of different agencies depending on the nature of the financial institution, within a single regulatory body."
The debate looms about creating a separate agency instead of bolstering the resources of those that are already charged with consumer protection. Congressman Bobby Rush (D-IL), chairman of the Subcommittee on Commerce, Trade and Consumer Protection, doesn't see the need to construct the CFPA.
"The [FTC] operates as a lone hawk. From high above, the agency can survey the marketplace and swoop down on predators that deceive unsuspecting and misinformed consumers," said Rush. "The higher and further away that the FTC is from other agencies and entities it regulates, the better it is at spotting unfair commercial and trading practices, and at isolating those practices that cast the longest shadows."
Matthew Carr, NACM staff writer