ABC News' Matthew Jaffe reports: The chairman of the House Financial Services Committee plans to make numerous “key changes” to the Obama administration’s proposal for a consumer financial protection agency, according to a memo obtained Tuesday by ABC News.
In a memo to Democratic lawmakers on the panel, chairman Barney Frank writes that in a soon-to-be-released “discussion draft” of possible legislation, he will make “several changes” to the administration’s proposal, including: “make clear that CFPA will not disrupt merchants, retailers and other nonfinancial businesses or subject banks and other depository institutions to needless additional regulatory burdens and costs.” “At the same time,” Frank writes, “CFPA will have a mandate to set strong rules that all financial institutions – both banks and nonbanks – will have to follow when providing financial products and services to consumers to create a level playing field and remove the current competitive disadvantage that adversely impacts traditional banks and thrifts.” The Massachusetts lawmaker then lists 10 areas that he intends to change as the House panel takes up its consideration of the administration’s proposal. The agency, Frank says, “will not be able to mandate ‘reasonableness’ standards that would place financial institutions in the untenable position of having to assess whether consumers comprehend the products and services they are being offered. Instead, CFPA will be mandated to improve the current disclosure regime with an emphasis on clarity, simplicity, conciseness, and reduction of regulatory burden.” Also, “financial institutions will not be required to offer plain vanilla products and services and CFPA will not have authority to approve or change business plans.” The funding for the agency, Frank writes, will come from the Federal Reserve. Accountants, real estate brokers, lawyers, auto dealers, cable providers, and IRA providers will not be subject to regulation by the agency. Steve Adamske, Frank’s spokesman, told ABC News that the memo “goes to refining the bill so people understand what’s in and out of the bill, resolving some questions that members had about what it does and does not do.” Since the administration laid out a series of sweeping proposed financial regulatory reform measures in June, the agency has been the only measure that the financial industry has vigorously opposed. These changes that Frank plans to make will soften that opposition, a source in the industry told ABC News. “They narrow the bill,” the source noted. On Friday, the US Chamber of Commerce, in a joint letter with 25 industry organizations, wrote to Frank and the panel’s ranking member Spencer Bachus of Alabama urging them to scrap the proposed agency. “At the very moment there are signs that the economy may be starting to recover, we believe the drastic powers granted to a new agency in H.R. 3126 will impose severe unintended consequences on businesses and consumers alike,” they wrote. “It is important to enhance consumer protection. However, creating a stand-alone agency with these vast regulatory powers is not the correct approach. Rather, enhancing the regulatory powers of the existing prudential regulators accomplishes the same goal and does not create such unintended consequences.” On Wednesday, Frank’s panel will hold two hearings on the administration’s financial regulatory proposals. Treasury Secretary Tim Geithner will testify on Wednesday morning, with a series of witnesses including FDIC chief Sheila Bair testifying at the afternoon session. Geithner on Tuesday met on Capitol Hill with Frank and Sen. Chris Dodd, chairman of the Senate Banking Committee. Geithner, said Adamske, pressed the lawmakers on when he would start to see some action. Over the course of the next few months, Frank plans to come up with a single consolidated bill on all the reforms that will come to a vote on the House floor in early November. Responding to critics who argue that the financial regulatory reform push is losing momentum in Congress, Adamske stated, “In fact, we’re gaining momentum,” citing that the panel will hold over half a dozen hearings in the coming weeks. Other key changes that Frank’s memo included: all nonbank financial institutions that provide consumer financial products and services will have to register with the agency and receive equal supervision to that which exists for traditional banks and thrifts; depository institutions will have simultaneous federal safety and soundness compliance exams; depository institutions that get conflicting supervisory determinations from the agency and their supervisors can appeal to a governing panel for a ruling; nonbanks will be subject to assessments, but neither small nor large banks will have to pay for the supervision of these nonbanks; the agency will be run by a single director who will be advised by a consumer financial protection oversight board, which consists of the federal banking agencies and other departments, including the Department of Housing and Urban Development; the agency will have an Office of Fair Lending and Equal Opportunity and will make financial literacy an important part of its mission. The narrowed scope of the bill might please the financial industry, but it could have the opposite effect on critics who have claimed that the administration’s proposals did not go far enough in the first place. When President Obama spoke on Wall Street last week, one critic remembered the words last winter of White House chief of staff Rahm Emanuel. “Rahm Emanuel said exactly the right thing – never let a good crisis go to waste,” recalled Simon Johnson, professor at MIT and senior fellow at the Peterson Institute. “The crisis is over – and it was wasted.”