WASHINGTON — The House Financial Services Committee approved an amendment to the bill creating a Consumer Financial Products Agency last week that would allow states to have the final word on consumer regulation, one of several changes to the bill as it passed the committee and was sent over for a vote by the full House.
The measure would reverse the latest trend in federal preemption for federally chartered banks and credit unions by allowing federal preemption only when state laws or regulations would "significantly interfere" with an institution's ability to do business.
Numerous recent rulings by NCUA and bank regulators allowed federally chartered institutions to ignore state laws on subprime mortgage lending, credit card charges and other issues they ruled were preempted by federal laws or regulations.
The amendment was added as Republican members of the committee failed in repeated efforts to kill or water down the bill, saying the new agency will stifle innovation, add to regulatory burden and increase the cost of doing business for credit unions, banks and other entities coming under the new agency's jurisdiction.
The Democratic majority of the House panel-37 of 70 members-turned back efforts by the Republicans to carve out exemptions for various interest groups and to "sunset" the agency, that is, require it to justify its existence every five years, as they moved to shape the new agency.
"We give the director of the CFPA authority over thousands of businesses, authority without any limitations. That's a recipe for an agency to grow like topseed," said Spencer Bachus, of Alabama, the senior Republican who is opposed to creation of the new agency.
The panel also rejected a Republican amendment that would have barred the agency from setting prices, rates or fees for financial products or services. Barney Frank, the Massachusetts Democrat who chairs the committee, argued the measure would prevent the agency from regulating overdraft fees.
Democrats Jackie Speier and Maxine Waters, both of California, also raised objections, saying the amendment would block the agency from cracking down on payday lenders.
Both CUNA and NAFCU were continuing to withhold their support from an amendment added to the bill that will exempt credit unions under $1.5 billion (and banks under $10 billion) from being examined by the new agency for compliance with consumer regulations and are holding out for an exemption for all credit union (there are about 75 credit unions over $1.5 billion). "We don't think it goes far enough," said Dan Berger, chief lobbyist, who said they will continue to push for an exemption for all credit unions.
Under the exemption, credit unions and banks would be examined for compliance with consumer regulations by their existing regulators, NCUA or state supervisors, for credit unions. The credit union lobby groups hope to obtain a full exemption from the examinations as the bill goes to the House floor, or after that, to the Senate for its deliberations.
Even with the exemption, all credit unions would still be required to comply with new consumer rules written by the new agency, which would also have ultimate authority over enforcement actions.
Meantime, the new consumer agency started to take shape.
The agency will oversee such products as mortgages, credit cards, payday loans and terms on savings accounts. It will monitor for compliance with consumer rules now enforced by the Federal Reserve, the Federal Trade Commission and other agencies and write new ones.
Several industries would be exempt from oversight, including retailers, auto dealers, lawyers and accountants. Gift cards would not be monitored by the agency. Lawmakers said the goal was to regulate financial products, not all financial transactions.
The agency would be funded by an estimated $330 million its first year that will come out of the Fed's budget. No financial institution will pay any more than it currently does for an examination.
