InfoBytes Regulatory Restructuring Report, Issue Three, June 25, 2009
Sign up for weekly updates
RSS feed
House Financial Services Committee Holds Hearing on Proposed Independent Consumer Protection Agency
On Wednesday, June 24, the House Financial Services Committee held its first hearing on the financial regulatory reform effort commenced last week with the issuance of the Obama Administration’s White Paper (reported in BuckleySandler Regulatory Restructuring Report, Issue One). The hearing focused on the proposed creation of an independent consumer financial protection regulator (referred to as the Consumer Financial Protection Agency in the White Paper). Appearing as witnesses were Professor Elizabeth Warren, who chairs the TARP Congressional Oversight Panel and is considered the original author of the idea of an independent consumer financial protection regulator, and Ellen Seidman, a former director of the FDIC and former director of the OTS. The other panelists included William Galvin, Secretary of the Commonwealth of Massachusetts, Edmund Mierzwinski, Consumer Program Director of U.S. Public Interest Research Group, Edward Yingling, President and Chief Executive Officer of the American Bankers Association, and Alex Pollock, Resident Fellow, American Enterprise Institute. Prior to the first panel, Congressman Delahunt (D-MA) briefly testified on behalf of H.R. 1705, the "Financial Product Safety Commission Act of 2009," legislation that was introduced prior to the White Paper, but which will be the legislative vehicle for the independent consumer financial protection regulator proposal.
Ms. Warren’s testimony expectedly supported creation of a consumer financial protection regulator, arguing that doing so would reduce systemic risk, reduce regulatory burdens, foster "good" innovation while weeding out the bad, and level the playing field by establishing a strong regulator focused on the consumer. On several occasions, Ms. Warren invoked an analogy to the Consumer Products Safety Commission, citing its mission to make physical products safer for American consumers, and queried why consumers of financial products should not enjoy the same protections. Her primary tenet was that consumers should be able to understand the financial products they are offered and use.
Ms. Seidman also supported the idea of an independent regulator with responsibility and authority to act on consumer complaints and to adopt regulations applicable to all providers of financial services. However, her views differed from Ms. Warren in a few notable areas. For example, Ms. Seidman expressed concern about separating primary responsibility for consumer protection from the entity’s prudential regulator, and instead favored amending the organic statutes for regulators to elevate the importance of the consumer protection mission. Ms. Seidman also expressed concern that moving Community Reinvestment Act ("CRA") oversight to the consumer protection regulator would endanger investment in community development finance.
The questioning from the Members of the Committee highlighted some issues that are sure to emerge as the flash points in the debate. While many on the Democratic side appeared to support the creation of a separate consumer financial protection regulator, the Republican members repeatedly voiced concern over several issues. Specifically, a number of members echoed Ms. Seidman’s testimony expressing about bifurcating safety and soundness and consumer protection missions. Some members also stated that creating a new agency that had the power to regulate specific products would simply add additional bureaucracy, reduce consumer choice (because the agency could ban products) and stifle market innovation. Rep. Hensarling (R-TX) stated that the concept of an "unfair" product is extremely subjective, and granting a regulator whose sole mission is consumer protection the ability to ban or otherwise restrict products on that standard would have negative effects on the market.
On the Democratic side, Chairman Barney Frank expressed support for H.R. 1705 and the concept of a consumer financial protection regulator, suggesting that there is no pattern of "over-regulation" in history supporting the fears raised by his Republican colleagues. However, in questioning, Rep. Frank did identify a couple of issues where he may not fully support the Administration’s White Paper proposal. In particular, he appeared hesitant to move CRA to the new agency, stating that it is "the one conflict" that needs addressing. He also questioned the panel on whether investor protection should stay with the SEC or be included with consumer protection of financial products. Chairman Frank also responded to the pleas of Mr. Galvin, whose testimony noted concern that the new agency would create additional levels of preemption over state consumer protection efforts, stating that he does not believe this will add preemption and reiterated his opposition to preemption of state regulation. Other Democratic members mentioned, among other things, coverage of non-bank entities such as payday lenders and money transmitters, adequate funding (and the manner of funding), and the ability to ban certain products, as key concerns.
A second panel focused on the proposed establishment of a national insurance regulator. The witnesses on that panel were: Travis Plunkett, Legislative Director of the Consumer Federation of America, Ms. Kathleen E. Keest, Senior Policy Counsel at the Center for Responsible Lending, the Honorable Ralph Tyler, Commissioner of Maryland Insurance Administration, Gary Hughes, Executive Vice President and General Counsel of the American Council of Life Insurers, Catherine Weatherford, President and Chief Executive Officer for NAVA, the Association for Insured Retirement Solutions, and Cliff Wilson on behalf of the National Association of Insurance and Financial Advisors. This panel focused on whether an independent consumer financial products regulator should have authority to regulate insurance products as well. Arguing against were Mr. Tyler, Mr. Hughes, Mr. Wilson and Ms. Weatherford, all of whom cited the substantial state regulatory framework already in place. Mr. Tyler also testified that consumer protection should not be separated from financial supervision, stressing that insurance products are fundamentally different from financial products. He stated that allowing a new federal agency to regulate consumer protection in insurance products would create regulatory overlap and lead to federal preemption of a robust framework of state law. Ms. Weatherford stated that another layer of regulation could actually harm consumers by separating product regulation from financial solvency regulation. On the other side, Mr. Plunkett argued that "strong consideration be given to providing the agency with jurisdiction over insurance products that are central or ancillary to credit transactions, such as credit, title, mortgage and forced place insurance."
As a final note, in his introductory remarks, Chairman Frank stated his intention to mark up legislation prior to the August recess. He noted that he thinks the final result will likely be a single bill, but that his committee will mark up separately various pieces of legislation embodying different aspects of the White Paper.
For a copy of all the testimony, please see http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrfc_062409.shtml.