Dodd Unveils Consumer Financial Protection Bill to Congress
Senator Christopher Dodd (D-CT), chairman of the Senate Banking Committee, unveiled details of a new bill to Congress today that would establish the controversial Consumer Financial Protection Agency (CFPA). In addition to forming the CFPA, the bill would merge the Office of Thrift Supervision (OTC) and the Office of the Comptroller of the Currency (OCC). The Federal Reserve would be responsible for systemically vital non-banks and control banks with more than $50bn in assets under the new bill. In October 2009, the House approved a bill establishing the CFPA as a regulating agency for financial products sold to US consumers. Sheila Bair, the chairman of the Federal Deposit Insurance Corp. (FDIC), pushed for consumer protection for the purpose of bridging the information gap between financial institutions and the consumer, claiming they did not understand the consequences of subprime mortgages. Under the Senate bill, the CFPA will form rules and regulations to ensure that consumers understand certain financial products – such as complex mortgages – before making any commitments. The CFPA will also aim to enforce fair lending practices. Douglas Elliott, a fellow of economic studies at the Brookings Institution think tank said the bill would consolidate the consumer responsibilities of current regulators into one agency, stripping those bureaus of any potential conflict when attempting to ensure the safety of the industry as well. “Many argue that a regulator responsible for the safety and soundness of an industry will almost always place more weight on this responsibility than on consumer protection, especially if there is viewed to be a conflict,” Elliott said. “The potential for such a conflict is, in fact, high, because financial institutions generally only persist in actions that are strenuously opposed by consumer advocates if those activities are believed to be strongly profitable.” John Taylor, the president and CEO of the National Community Reinvestment Coalition (NCRC), a trade group that ultimately seeks to place private capital into traditionally underserved communities, said the CFPA would be too weak under the new bill and would not provide the protection needed as existing regulators would still have a hand in consumer oversight. “Senator Dodd’s bill fails to ensure a regulatory framework that will provide strong protections for consumers. In particular, placing the CFPA at the Federal Reserve and giving existing financial regulators veto power undermines the goal of protecting consumers,” Taylor said. “This proposal gives the appearance of providing consumer protection, while leaving the real power in the hands the bank regulatory agencies that failed to protect American consumers because they were too busy listening to Wall Street.” But according to Elliott at the Brookings Institute, other opponents of the bill claim the CFPA would promote a bias toward consumers. Elliott said it is conceivable that the agency would disallow mortgages with a down payment of less than 10%. Despite the arguments on how strong or weak the CFPA should be, Elliott said it would be better than nothing at all. "It would be better to move forward with something along the lines of Senator Dodd’s bill than to fail to pass any legislation," Elliott said. Write to Jon Prior.