Attempting to garner Republican support for broader financial regulatory overhaul, Senate Banking Committee Chairman Christopher J. Dodd, D-Connecticut, has dropped the proposal for an independent Consumer Financial Protection Agency.
Media reports now has Dodd placing the consumer watchdog agency within either the U.S. Treasury or the Federal Reserve, which already has broad rulemaking authority, such as finalizing provisions of the sweeping credit card reform laws that went into effect last week.
The hotly-debated CFPA has been pushed hard by President Obama as a much-needed, independent overseer of credit cards, mortgages and other financial products. A stand-alone agency also has been promoted by consumer groups as key to preventing abusive practices of the past few years, many of which contributed to the financial crisis.
But Republicans and business and banking associations have been unrelenting in their opposition to an independent authority, fearing over-reaching rulemaking powers, even beyond banking institutions.
The Washington Post is reporting that a proposal by Sen. Bob Corker, R-Tennessee, who has been negotiating with Dodd, would have a presidential appointee inside the Fed heading the consumer protection entity with an independent budget and a rulemaking authority. Those rules, however, would be enforced by the Fed and other existing banking regulators.
That may create newer opposition fueled by festering discontent over the Fed’s role throughout the financial crisis. Even Dodd has blasted the Fed for not fully utilizing its current consumer protection powers.
Other media reports say the CFPA is now being proposed as the Bureau of Financial Protection and would be placed within the Treasury Department, also with a director appointed by the president. But the BFP would have limited rulemaking authority.
The independent nature of the new consumer watchdog agency has been the key point of contention for months between business and banking groups on one side, and President Obama and numerous consumer groups on the other.
Led by the U.S. Chamber of Commerce and the American Bankers Association, CFPA opponents have been well-funded and steadfast in opposing an independent authority as having too much power and adding unnecessary bureaucratic layers that would reach beyond banks.
In its website, stopthecfpa.org, opponents say that a stand-alone agency would create a “regulatory overlay over the entire business community.” They also said the original CFPA proposal would reduce the quality and quantity of financial products.
The ABA reported last week that U.S. Treasury Secretary Timothy Geithner met with ABA President and CEO Ed Yingling, and the heads of several other financial services trade groups. Geithner relayed the importance of including an independent consumer agency in any financial oversight overhaul bill presented to President Obama.
“While the concept of an independent CFPA appears all but dead, disagreement continues over whether to house a new consumer office under Treasury or the new federal regulator,” the ABA reported on its website Thursday. During his meeting with the bank trade groups, Geithner stressed that a new agency with independent enforcement authority was needed.”
The financial oversight bill that passed in the House in December included a new “oversight council” to monitor “systemic risk” to the economy. Dodd has proposed a new regulatory authority that would strip the Fed of some of its historic authority. Such a re-alignment has been heavily criticized by Fed Chairman Ben Bernanke, even going as far as saying such an overhaul could pose a threat to economic stability.
Consumer watchdog groups have been equally adamant in pushing for an independent agency free of political influence and the existing regulatory structure.
In a letter to the Senate, Consumers Union, the publisher of Consumer Reports, urged lawmakers to push for an independent agency with the regulatory authority necessary to cover “all financial products including all financing-related activities.”
“We urge you to strongly support a stand alone, fully-empowered Consumer Financial Protection Agency (CFPA),” Consumers Union wrote in a letter to senators. “The CFPA would protect consumers from abusive, unsafe and deceptive financial products and services. It would require that all financial disclosures be fair, transparent and easy to understand.”
