WASHINGTON — In advance of a hearing on regulatory reform proposals, House Financial Services Committee Chairman Barney Frank outlined his changes late Tuesday to legislation to create a consumer protection agency.
In a memo sent to Democratic members of the committee, Frank said he will soon release revised language that will, among other things, eliminate a controversial provision to require financial institutions to offer "plain vanilla" products before moving on to more complicated loan products.
The move marked another break with the Obama administration, which first suggested the creation of a Consumer Financial Protection Agency as part of its regulatory restructuring plan, and charged it with mandating a plain vanilla standard. In recent weeks, several Capitol Hill aides have said such a standard was unworkable.
On Tuesday, Treasury Secretary Tim Geithner met with Frank and Senate Banking Committee Chairman Chris Dodd. Frank is expected to release his proposed legislative changes as soon as Wednesday, the same day as he holds a hearing on regulatory restructuring with Geithner and bank regulators.
The memo also said Frank plans to eliminate a "reasonableness" standard that would require financial institutions to determine if consumers comprehend the products and services they are being offered. Instead, Frank would call on the CFPA to mandate improved disclosures to consumers.
In response to aggressive attacks by the Chamber of Commerce and the banking industry, Frank's language would exclude merchants, retailers and other non financial businesses from the CFPA. Other businesses exempted include lawyers, auto dealers, accountants, consumer reporting agencies, communications providers, and IRA and pension plan providers.
The Chamber of Commerce has begun ads and a Web site to attack the CFPA and even gone as far as to claim it could cover bakers and butchers. On Tuesday, the group held a briefing where it argued the scope of the CFPA was so broad it could extend to teachers who teach financial literacy to students. National Economic Council Director Lawrence Summers, in turn, has compared the attacks to the "death panel" claims on health care reform.
In Frank's memo, he also addresses banker concerns on overlapping and burdensome examinations by the creation of the new agency. Frank will propose that depository institutions face simultaneous federal safety and soundness and consumer protection exams (unless otherwise requested). Banking agencies and the CFPA would be required to coordinate the timing, scope, and results of examinations.
Frank also addresses the funding of the agency in his memo. He calls on nonbanks to be subject to assessments and specifies that neither small nor large banks would pay for the examination or supervision of nonbanks. Further, the Federal Reserve Board would fund the CFPA at a level that reflects the amounts the banking agencies currently pay for consumer protection supervision.
The changes may not be enough to persuade Republican lawmakers or the industry. They still propose the overall creation of the agency and a provision that would essentially eliminate preemption for consumer protection laws. It is unclear if the preemption language will be narrowed or eliminated.
