InfoBytes Regulatory Restructuring Report, Issue Five, July 10, 2009
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Legislation Introduced to Create Consumer Protection Regulator; Additional Hearings Held on Financial Regulatory Reform Proposals
Rep. Frank Introduces Legislation to Create Consumer Financial Protection Agency. On July 8, the Chairman of the House Financial Services Committee, Barney Frank (D-MA), introduced legislation (H.R. 3126) to create the Consumer Financial Protection Agency (CFPA). The language of H.R. 3126 is nearly identical to the legislative language proposed by the Obama Administration a week earlier (reported in BuckleySandler Regulatory Restructuring Report, Issue Four), save for one substantive issue. As introduced, H.R. 3126 would not include the Community Reinvestment Act as one of the “enumerated consumer laws” that will transfer over to CFPA authority. Otherwise, the legislation appears substantially identical. This bill will be one of the pieces of legislation that the House Financial Services Committee intends to mark up before the August recess. To see the Committee press release and the language of the bill, please see http://www.house.gov/apps/list/press/financialsvcs_dem/press_070809.shtml.
House Energy & Commerce Committee Holds Hearing on the Role of the FTC. On Wednesday, July 8, the Subcommittee on Commerce, Trade, and Consumer Protection of the House Energy and Commerce Committee held a hearing to examine the implications of the proposed creation of the new independent consumer protection regulator – the CFPA – on the continuing role of the FTC in consumer protection. Even as many members expressed support for the creation of the CFPA, the members of the Committee also sounded concern about the FTC losing its jurisdiction and expertise. In his opening statement, Chairman Bobby Rush (D-IL) stated that he believed the FTC should stay intact and as currently constituted (and that the Committee retain oversight of the FTC). Rep. Waxman (D-CA), the Chairman of the full committee, stated that while a new approach for protecting consumers is needed, the FTC should be strengthened and not weakened, because unlike the banking agencies, the FTC has consumer protection as its core mission. Other members of Congress also voiced concern about eroding the FTC’s jurisdiction. Rep. Radanovich (R-CA) stated that it appears under the proposal the FTC is “getting more money to do less.” Rep. Stearns (R-FL) noted that moving oversight of privacy issues (such as financial privacy) would result in a loss of substantial expertise developed by the FTC over the years.
Despite the concerns noted by the members of the Committee, Jon Leibowitz, the Chairman of the FTC, generally supported the creation of the CFPA, stating that the FTC would still be a vigorous enforcer of consumer protection and that the new agency would enhance protection of consumers as “another cop on the beat.” He also supported those aspects of the Administration’s proposal to create the CFPA that provide additional resources to the FTC, including the ability to take action against those who “aid and abet” unfair and deceptive acts and practices, streamlining the FTC’s rulemaking authority under the Administrative Procedures Act, enhanced law enforcement remedies, and additional personnel, among other things. However, the FTC Chairman’s testimony also raised concerns about transferring FTC authority to the CFPA. Mr. Leibowitz specifically noted that many of the terms in the legislation are “very broad” and that “to the extent these definitions dictate which FTC functions would be transferred to the CFPA, their breadth could limit the ability of the FTC to protect consumers outside the context of traditional financial services.”
Michael Barr, Assistant Secretary of Financial Institutions at Treasury, testified in support of the Administration’s proposal, and reiterated the Administration’s stated view that a new model is required in order to protect consumers. On the other side, Stephen Calkins, professor of law at Wayne State University and a former general counsel at FTC, suggested that the legislation would fundamentally change the FTC’s role, and that Congress should carefully consider whether it would be doing more harm than good to consumers by limiting the FTC’s jurisdiction. For a copy of the testimony of all witnesses, please see http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1702:energy-and-commerce-subcommittee-hearing-on-the-proposed-consumer-financial-protection-agency-implications-for-consumers-and-the-ftc&catid=129:subcommittee-on-commerce-trade-and-consumer-protection&Itemid=70.
House Financial Services Subcommittee Holds Hearing on the Role of the Fed as a Systemic Risk Regulator. On July 9, the Subcommittee on Domestic Monetary Policy and Technology of the House Financial Services Committee held a hearing called “Regulatory Restructuring: Balancing the Independence of the Federal Reserve in Monetary Policy with Systemic Risk Regulation.” Donald Kohn, Vice Chairman of the Federal Reserve Board, in both his testimony and in his responses to questioning, asserted that granting systemic risk oversight to the Fed would be “compatible with the pursuit of [its] statutory monetary policy objectives.” He stated that the proposed grant of additional oversight power would be an “incremental” increase in power consistent with their current missions, citing its role as a consolidated supervisor for all bank holding companies in particular. In questioning, various Republicans, including Rep. Bachus (R-AL), Rep. Paul (R-TX), and Rep. Ellison (R-MN), questioned the wisdom of the proposal, stating either that the Fed has not been an adequate regulator of macroeconomic concerns, or that such additional systemic risk oversight responsibilities would distract and detract from the Fed’s monetary oversight mission.
The remaining panel consisted of various academicians and economists, including Dr. Frederic Mishkin, a professor at Columbia University Business School, Dr. Laurence Meyer of Macroeconomic Advisers, Dr. Richard Berner, Chief Economist at Morgan Stanley, Dr. James K. Galbraith, a professor at the LBJ School of Public Affairs at the University of Texas, Dr. John B. Taylor, professor at Stanford University, and Dr. Allan Meltzer, professor at the School of Business at Carnegie Mellon University. Some of the panelists, including Dr. Mishkin, Dr. Meyer, and Dr. Berner, generally supported the proposal to make the Fed the systemic risk regulator. The others argued against the proposal, reiterating the concerns raised by Rep. Bachus and Rep. Ellison that either the Fed would be an ineffective systemic risk regulatory or that acting as one will interfere with its monetary policy mission. For a copy of the testimony, please see http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrdmp_070909.shtml.
Additional hearings in the Financial Services Committee are scheduled for next week, followed by several days of planned legislation mark-up sessions.