By Cliff Montgomery – July 27th, 2009
A short Congressional Research Service report issued on July 17th discusses the first of President Obama’s”sweeping reforms of the financial services regulatory system.”
The American Spark below offers a number of essential quotes from the CRS study.
“In the wake of what many believe is the worst U.S. financial crisis since the Great Depression, the ObamaAdministration has proposed sweeping reforms of the financial services regulatory system, the broad outline ofwhich has been encompassed in a nearly 90-page document called the President’s White Paper (the WhitePaper or the Proposal).
“The Proposal seeks to meet five objectives:
(1) ‘Promote robust supervision and regulation of financial firms’
(2) ‘Establish comprehensive supervision and regulation of financial markets’
(3) ‘Protect consumers and investors from financial abuse’
(4) ‘Improve tools for managing financial crises’, and
(5) ‘Raise international regulatory standards and improve international cooperation.’
“The Administration likely will offer specific legislative proposals that would implement each of the fiveobjectives of the White Paper.
“On June 30, 2009, the Obama Administration made available the first such legislative proposal, called theConsumer Financial Protection Agency Act of 2009 (CFPA Act). The Act would establish a new executiveagency, the Consumer Financial Protection Agency (CFPA), to protect consumers of financial products andservices.
“On July 8, 2009, Representative Barney Frank, Chairman of the House Financial Services Committee,introduced very similar legislation…which also is entitled the CFPA Act of 2009.
“This report provides a brief summary of the President’s CFPA Act… […]
“Under the Act, the CFPA would be headed by a board consisting of four members appointed by thePresident, subject to the advice and consent of the Senate, for five-year staggered terms and subject toremoval only for cause.
“The board also would have one ex officio member, the Director of the National Bank Supervisor (proposed inthe White Paper to be a new government agency, which would be established under subsequent legislation, incharge of prudential regulation of all federally chartered insured depositories).
“The Agency would be funded through appropriations and potentially through fees assessed by the CFPAagainst covered entities.
“The CFPA would be established to ‘seek to promote transparency, simplicity, fairness, accountability, andaccess in the market for consumer financial products and services’ to ensure that consumers are able to makeeducated decisions regarding financial products and services, that they are ‘protected from abuse, unfairness,deception, and discrimination’, that markets operate efficiently and fairly, and that ‘traditionally underservedconsumers and communities have access to financial services.’
“To implement these goals, the CFPA would have authority over a vast array of financial activities, includingdeposit taking, mortgages, credit cards and other extensions of credit, investment advising by entities notsubject to registration or regulation by the Securities and Exchange Commission or the Commodity FuturesTrading Commission, loan servicing, check-guaranteeing, collection of consumer report data, debt collection,real estate settlement, money transmitting, financial data processing, and others.
“The CFPA would not have authority over insurance activities other than mortgage, title, and credit insurance.
“The range of entities engaged in financial activities that would be subject to the CFPA also is expansive underthe Act, including banks, credit unions, and mortgage brokers to name a few. […]
“Additionally, the Act would consolidate in the CFPA consumer protection regulatory and enforcementauthority, which is currently shared by a number of federal agencies.
“The Act would transfer to the CFPA the ‘consumer financial protection functions’ and many of the employeesperforming those functions from the Board of Governors of the Federal Reserve System (Federal Reserve),the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal DepositInsurance Corporation (FDIC), the Federal Trade Commission (FTC), and the National Credit UnionAdministration (NCUA).
“However, according to the guidelines of the White Paper, these agencies, with the exception of the OTS,would retain safety and soundness supervisory and examination powers outside the purview of consumerprotection over certain regulated entities.
“The CFPA also would be the primary federal regulator, examiner, and rulemaker with enforcement authorityunder many of the federal consumer protection laws… […]
“The CFPA would be required to monitor the market and the innovation of new products and services. In orderto do so, the Act would provide the Agency the authority to examine covered persons, including national banks,federal credit unions, and federal savings and loan associations.
“Under current law, examination powers generally rest exclusively in the institutions’ primary regulators.”
