Industry representatives catalogued their litany of concerns over a proposed consumer financial protection agency Wednesday, but Democratic lawmakers made clear they have little patience for the industry's arguments.
The House Financial Services Committee invited the heads of seven financial services trade groups to collect feedback on the administration's plan to reform the regulatory system.
But the witnesses spent much of their testimony bashing one component of the plan: the creation of a new agency to protect financial consumers which could gut federal preemption.
"The consumer proposal is beginning to come under some major close scrutiny and there are some major questions that have not been solved at all," said Edward Yingling, the president and chief executive officer of the American Bankers Association.
But Democratic leaders on the panel were not impressed.
Rep. Maxine Waters, D-Calif., reacted angrily to the industry's objections to the agency, and said the witnesses were in denial about the causes and extent of the financial crisis.
"You don't come here with any real instructions, advice or plan that you can share with us to deal with the crisis," said Rep. Waters, the chairman of the panel's housing subcommittee. "All you can talk about is preemption knowing full well that you will work your magic … to prevent any real strong legislation coming from Congress. … Would somebody answer me what is their understanding of the crisis? Is there a crisis?"
Committee Chairman Barney Frank, D-Mass., asked for a show of hands from the witness if they all opposed doing away with preemption.
"You think consumers are going to be better protected if we preempt all state consumer protection laws," he said.
Most of the trade group heads concurred. Holdouts included the Independent Community Bankers of America. Michael Menzies, the ICBA's chairman and the chief executive of Easton Bank and Trust Co. in Maryland, said state regulators deserve a strong role under a new regulatory system.
"Basically, for our organization if preemption means that we neuter [the Conference of State Bank Supervisors] we would probably be opposed to it, but we do like the notion of uniformity and we think that CSBS is doing a great job," he said.
But Yingling was more vocal in questioning the administration's plans.
He said it is still unclear how the consumer protection agency will be funded, and a new regulator without adequate resources will be ineffective.
"The budget for this new agency — no one has any idea what it is," he said.
"If it's done on the cheap it can not do what it says it's going to do."
For their part, Republicans appeared to share industry concerns over the consumer protection agency plan. They raised questions about reducing access to credit, limiting consumer choice and rushing through reform without thinking through the potential for killing the marketplace.
"The CFPA represents one of the greatest assaults on economic liberty in my lifetime. It says to the American people, 'You are simply too ignorant or too dumb to be trusted with economic freedom,' " said Rep. Jeb Hensarling, R-Texas.
"To take from consumers their freedom of choice, to restrict their credit opportunities in the midst of a financial recession — all in the name of consumer protection — is positively Orwellian. A consumer product politburo does not equate into consumer protection."
Although the main focus of the hearing hinged on the consumer protection agency, trade groups also offered their views on systemic risk regulation.
Yingling said the ABA recognizes the debate over systemic risk in Congress has shifted from giving the Fed systemic risk oversight to charging a council with such power.
He questioned whether that was a good idea.
"The council should generally not regulate individual institutions and should primarily use information gathered from institutions through their primary regulators, together with broader economic information," Yingling said. "However, the systemic agency should have some carefully calibrated backup authority."