WASHINGTON — The consumer protection agency envisioned by the Obama administration would have wide latitude to crack down on abusive financial products, assess fees against financial firms, and subpoena information in the name of protecting consumers, according to a legislative proposal released Tuesday.
The Treasury Department, in unveiling the roughly 150-page document, put down an aggressive marker on a piece of legislation the financial services industry is already gearing up to oppose. If agreed to by Congress, the measure would for the first time create a single agency that would have broad authority to write and enforce rules against any firm that provides financial products to consumers, including mortgages and credit cards.
"This agency will have only one mission — to protect consumers — and have the authority and accountability to make sure that consumer-protection regulations are written fairly and enforced vigorously," Treasury Secretary Timothy Geithner said in a statement.
The White House announced plans for the agency earlier this month as part of the broader plan to revamp U.S. finance rules. Tuesday's release of specific legislative language is likely to serve as a jumping-off point for lawmakers as they begin drafting legislation in the coming weeks.
Michael Barr, the assistant Treasury secretary for financial institutions, discussing the proposal with reporters Tuesday said that the administration expects Congress to act quickly on the measure and that President Barack Obama is "highly committed and highly focused" on seeing it enacted.
"It will level the playing field with high standards," Barr said, ensuring that there is a "baseline of respect and dignity" that all consumers deserve.
He also offered a stern warning to financial-services firms and their phalanx of Washington lobbyists: the status quo for consumer protections is "unacceptable" to the Obama administration.
House Financial Services Committee Chairman Barney Frank, D-Mass., said in a statement released by his office that he wants the panel to draft and approve legislation creating the new agency before lawmakers adjourn for their traditional August recess.
"I believe there is a great deal of common ground between us," Frank said.
The administration's proposal would consolidate the responsibility for protecting consumers, authorities that currently reside across multiple agencies that are also tasked with protecting the safety and soundness of firms.
"A single agency will be able to be more responsive to changes in the market and more vigorous in addressing unfair and abusive practices," the Treasury said in a fact sheet on the proposal.
The independent agency would be called the Consumer Financial Protection Agency and would be overseen by a five-member board. The administration's proposal would allow the regulator to levy annual fees or assessments on the financial industry to help pay for regulation, and would create a new "victims' relief fund" to accept any civil penalties the agency collects from firms.
The agency would be able to force testimony and obtain information under the new regime, and would be able to broadly assess potential risks to consumers. To ensure that rules enacted by the agency are having the desired effects, it also would have to do a self-assessment of any significant rule it passes within five years.
The Treasury also said the agency would work with the Department of Housing and Urban Development and the Federal Reserve on efforts to eliminate unnecessary mortgage-related paperwork, among other things. It would enforce recently enacted credit-card legislation and ban unfair practices such as "yield spread premiums," which are side payments from lenders that encourage mortgage brokers to push consumers into higher priced loans.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., who will lead that chamber's efforts to move legislation, expressed skepticism about the arguments already being put forward by the banking industry that the proposed consumer protections are too onerous.
"It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers," Dodd said in a statement.
Some financial products used by consumers would remain outside the planned agency's jurisdiction. Mutual funds and annuities currently regulated by the Securities and Exchange Commission would remain under that agency's umbrella, while insurance products would still be monitored by the states. The Consumer Financial Protection Agency would be able to regulate products like stored-value cards, but they would look at the issuers and not the specific retailers.
At least one GOP lawmaker said separating consumer protection from current regulators is a mistake. Rep. Scott Garrett, R-N.J., said in a statement that the new agency would do nothing to address "human error" at regulatory agencies.