WASHINGTON — Creating a new government agency always leads to battles over turf, but it's usually the regulators doing the fighting.
At a hearing Wednesday on the Obama administration's plan to consolidate authority for protecting consumers of financial products into a new agency, members of the House Energy and Commerce Committee went to bat for the Federal Trade Commission, arguing it should keep its existing financial protection powers.
Their arguments, however, were undercut by none other than the agency's head, Chairman Jon Leibowitz.
"The president's goal of streamlining the overall system for protecting consumers from financial [entities] is more than commendable … and eliminating balkanization of consumer protection oversight of banks and nonbanks is laudable and very, very pertinent," Leibowitz testified before the panel's consumer protection subcommittee.
But lawmakers may be less concerned about protecting the FTC than about guarding their own jurisdiction.
Energy and Commerce lost a big chunk of its power in 2000, when the then House Banking Committee absorbed much of its oversight responsibilities over financial matters and was renamed the Financial Services Committee. Since that time the two panels have clashed over matters that fall into a gray area between the committees' jurisdiction, including the FTC.
In nearly an hour of opening statements, lawmakers on both sides of the aisle gave a lukewarm reception to the Obama proposal, arguing that the FTC, which currently has authority over mortgage lenders and other nonbanks, should keep its responsibilities. Banking regulators have also lobbied to keep their power over financial institutions.
"I believe that the FTC should remain intact as it is currently constituted, and that this committee and subcommittee should continue to oversee and authorize the FTC," said Rep. Bobby Rush, the chairman of the commerce, trade and consumer protection subcommittee. "Importantly this 'push and pull' between our respective committees has pressured the providers of financial services and products, including banks and depository institutions, to balance the allure of profits and determinations of safety and soundness against the needs of consumers."
Despite repeated attempts by members to goad Leibowitz to fight for keeping the FTC's existing authority over financial services, he would not take the bait.
Rep. George Radanovich of California, the senior Republican on the subcommittee, questioned the FTC's position outright.
"I gotta think you are doing a bit of a dance because you stand to lose some jurisdiction in the FTC," he said. "It seems to me at least under the proposal you are getting more money and authority to do less."
But Leibowitz said the issue was not about turf, but what is best for consumers.
"From my perspective, if you create this new agency and you also give us more resources and authority from the perspective of consumers, they will be getting a better deal," he said. "We will continue to have a backstop authority with respect to financial matters and we are going to be able to concentrate and do more for consumers."
Under the plan, the FTC and federal banking agencies would lose oversight of consumer protection issues related to financial products to the new agency but would still be able to refer cases if they spotted problems.
If the consumer protection agency did not act within 120 days on those referrals, the FTC or banking agencies could pursue their own action against a financial firm. The FTC would keep its role to police anticompetitive practices among businesses, and still have the power to write rules defining unfair and deceptive practices.
Michael Barr, the Treasury assistant secretary for financial institutions, also testified about the need for a new agency solely focused on protecting consumers, arguing the issue was personally important to President Obama.
"The president feels very strongly about the need to protect consumers," Barr said. "He feels very strongly that we need a fundamental change from the past and we need to lay a new foundation with a consumer financial protection agency that covers the financial services sector and creates high and consistent standards to protect consumers. It is a very, very top priority to the president."
Asked by reporters after the hearing if he was concerned about a turf battle between congressional committees, Barr said he was confident any issue could be worked out.
"The committee and the Congress and the leadership are all going to work together to get the entire financial regulatory reform plan done and I don't think we as a country can afford and consumers cannot afford to let concerns about that dissuade us from getting the job done," he said. "The FTC does after-the-fact enforcement on a small part of the problem. It has a very small staff. It hasn't brought safety into the areas we need it."
Indeed, some observers noted that Energy and Commerce Committee Chairman Henry Waxman avoided taking a hard stance. Instead he raised general concerns about ensuring the FTC had sufficient power to accomplish its mandate and appeared to leave the door open to also supporting a new agency.
"It only makes sense to create a new agency if that new agency will become a strong, authoritative voice for consumers," the California Democrat said. "We must ensure the Federal Trade Commission is strengthened not weakened, by any changes. Unlike the banking agencies, FTC has consumer protection as its core mission. … It is not clear what impact these proposals would have on FTC or its ability to its perform consumer protection mission."
While the FTC backs the Obama plan, the banking agencies are not ready to give up their authority.
Supported by the industry, the banking regulators have argued that consumer protection can not be separated from prudential oversight of banks and thrifts. The agencies have not had a chance to testify before Congress on the issue. Some analysts said turf considerations could slow passage of a bill creating the agency, which the House Financial Services Committee is hoping to vote on this month.
Jaret Seiberg, an analyst with Stanford Research Group, a division of Concept Capital, said the concerns among members of the Energy and Commerce Committee are going to have to be addressed in some way.
"The turf battle here is another complication that the administration has to overcome it to get its consumer financial protection agency," he said. "They are going to have to be accommodated."
