Politics & Government

Debate joined over new Consumer Financial Protection Agency

WASHINGTON — A key committee in the House of Representatives began breaking down the Obama administration's financial-regulation revamp into separate parts Wednesday, promising to pass the portion that would affect most Americans, a proposed Consumer Financial Protection Agency, by the end of July.

The House Financial Services Committee held its first comprehensive hearing on the proposed panel, which would be given many of the consumer protection powers over mortgages and credit cards that now are spread across as many as 10 federal regulators.

The panel is needed, the Obama administration argued in a broad revamp proposal last week, because consumer protection has taken a back seat to other aspects of bank regulation. The result has been that there were plenty of rules governing predatory lending on credit cards and mortgages but nobody enforced them with gusto.

The Consumer Financial Protection Agency would change that. The concept of the panel came from Harvard University professor Elizabeth Warren, who now heads the Congressional Oversight Panel, which is charged with watching how Wall Street bailout money is being spent.

The proposal would put the regulatory powers that are spread across several agencies in one place, under one supervisory panel, which would write and enforce new regulations. It also might require lenders to offer simpler explanations of how credit card rates are calculated and what the true costs are for an array of mortgage products.

In sometimes-testy exchanges, Warren fought off suggestions by several Republican lawmakers that a new entity isn't needed, just new powers for existing regulators.

"Congressman, that sounds like a good plan but that's what we have been doing for the last 70 years, and it hasn't worked very well," Warren responded.

For decades, she said, regulation has focused not on the products, such as mortgages or credit cards, but on the issuers of products.

"This structure has not worked," Warren said emphatically.

The consumer advocate U.S. Public Interest Research Group shared that view.

"These regulators look at consumer protection as something they don't do," testified Edmund Mierzwinski, the director of the group's consumer program.

He cited the Federal Reserve's failure to upgrade significantly, over a period of 15 years, key regulations under the Home Ownership and Equity Protection Act. The Fed did so last year, when it was already too late, addressing many of the abuses in mortgage lending that brought about the sub-prime crisis.

Another example, Mierzwinski said, was the Bush administration's Office of the Comptroller of the Currency — a chief bank regulator — going to court to defeat efforts by states to regulate on behalf of consumers. The OCC argued that federal law pre-empts such action by states, but after defeating the states' efforts the agency did nothing to halt predatory lending and even weakened standards for lending and a number of other problems that the state regulators were trying to fix.

These points got an unexpected boost from Edward Yingling, the president of the American Bankers Association. Regulators let the consumer down, he agreed, but these very regulators can be staffed with people who are willing to do the job of protecting the consumer, and a new regulatory body isn't needed.

"If you have separate regulators, you separate the business from the product," he warned, suggesting that the new panel would create overlapping supervisors who'd come in separately seeking to see the same things in banks' books.

In an interview after the hearing, Warren said that not only would the new panel reduce the number of regulators, it most likely would lead to fewer government employees, since it would do away with the need for so many bank examiners.

"I have already had calls from people who are regulators who are worried about job security," Warren said.

The chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., said that he intended to move legislation creating the consumer panel through the committee by the end of July. He also hoped to craft bills addressing some other parts of the Obama plan by the end of next month, then marry them into one bill in the fall to clear the full House of Representatives.

The House is moving faster on overhauling financial regulation than the Senate is. The chairman of the Senate Banking Committee — Christopher Dodd, D-Conn. — is in charge of pushing Obama's health care legislation, which is pushing the financial regulatory revamp to a slower track temporarily.

Obama and congressional Democrats hope to complete a sweeping rewrite of financial regulation before the year is over.


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