- Law Cases
by Sharon Rondeau
(Apr. 24, 2010) — A bill which would impose new federal regulations on the private sector quietly passed the House of Representatives on December 11, 2009 and has been referred to the Senate Committee on Banking, Housing and Urban Affairs.
HR4173, also known as the “Financial Stability Improvement Act,” is 1,705 pages long and would consolidate the banking, insurance, and mortgage industries by the Secretary of the Treasury. It includes the creation of the Consumer Financial Protection Agency (CFPA) which, according to SourceWatch, “is at the center of the Obama administration’s overall plans to overhaul financial regulations. This Agency would take certain consumer regulatory responsibility of financial products from seven other agencies and centralize it in one office. It would have the authority and accountability to supervise, examine, and enforce consumer financial protection laws. It will be empowered to make rules, examine balance sheets and issue subpoenas. Any institution that provides consumer financial products such as mortgages, credit cards, student loans, auto loans, payday loans, and other consumer products, including payday lenders and mortgage brokers, will fall under the agency’s jurisdiction. The agency would ban deceptive practices and oversee new consumer financial products.”
Last year, Treasury Secretary Timothy Geithner applauded the plan to create the CFPA when he stated, “Consumer protection will have an independent seat at the table in our financial regulatory system. By consolidating accountability in one place, we will reduce gaps in federal supervision and enforcement, drive greater clarity in the information consumers receive around products they are sold, set higher standards for those who sell those products and promote consistent regulation across the system.”
The current version of the bill mandates that “Immediately upon enactment of this title, there is established a Financial Services Oversight Council,” which will be made up of voting members chaired by the Secretary of the Treasury (p. 25). The Council can form “subsidiary working groups” and “detail permanent staff” (pp. 31-32).
The bill also requires that an audit of the “Federal Reserve System and the Federal reserve banks” be performed within two years of the passage of the legislation (p. 25). However, on page 40, it states that the “Board of Governors of the Federal Reserve System shall act on behalf of the Council, acting on behalf of the Council.”
Duties of the Council are several, among them, “To advise the Congress on financial domestic and international regulatory developments, including insurance and accounting developments, and make recommendations that will enhance the integrity, efficiency, competitiveness, and stability of the United States financial markets” (p. 27) and “to subject financial companies and financial activities to stricter prudential standards in order to promote financial stability and mitigate systemic risk in accordance with subtitle B” (p. 28).
To date, activity in the Senate has yielded the passage in the Banking Committee of a similar measure which would create a new entity, the “Bureau of Consumer Financial Protection.” According to the U.S. Chamber of Commerce, “this new regulator would have unprecedented powers and authority to determine the types of financial products consumers can choose from. In fact, the bill extends far beyond traditional financial services products to a vast segment of the economy – in short creating a new regulator for much of the business community.”
A press release dated March 29, 2010 on the website of the Senate Banking Committee chaired by Sen. Christopher Dodd (D-CT) states:
Giant Wall Street banks are spending millions of dollars to lobby against financial reform. These giant firms face one problem, money can’t buy you love. So, to try and sway public opinion, they are trying to take advantage of the well deserved reputation of their responsible smaller colleagues, community banks.
An entry on the Ideal Taxes Association blog by Raymond Richman dated April 23, 2010 describes Obama’s “motives in offering a financial reform bill to regulate Wall Street and the banks has all the appearances of a Mein Kampf strategy for national socialism…Personally, I have little doubt that his principal objective in this so-called reform proposal as it was in the healthcare bill and in taking over GM is to socialize the economy. He will use the next crisis, if we have a double dip as appears likely, to nationalize the banks and Wall Street and the credit card companies.”
The bill contains a provision which allows for “Financial Company Data Collection” which reads, “The Council or the Board may require the submission of periodic and other reports from any financial company solely for the purpose of assessing the extent to which a financial activity or financial market in which the financial company participates, or the company itself, poses a threat to financial stability” (p. 42).
The Senate Banking Committee version of the bill states that it would create “a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.” It also contains a provision by which Congress could approve, by a two-thirds vote, a recommendation by the Federal Reserve “to require a large, complex company to divest some of its holdings if it poses a grave threat to the financial stability of the United States…” (p. 3).
On Wednesday, the Senate Agriculture Committee passed a bill would also regulate “over-the-counter derivatives” aimed at “targeting the complex financial instruments at the heart of the 2008 global meltdown.”
The website of Stop the CFPA has offered the following analysis of the House and Senate versions of the bill being considered:
Rather than maintaining uniform national consumer protection standards so that everyone in the country is afforded the same protections, the Senate Discussion Draft opens the door—for the first time in nearly 150 years—to inconsistent, duplicative, and conflicting mandates between federal and state agencies.
The House bill follows the same erroneous course, adopting a new—and unclear—standard that could allow a significant increase in conflicting state law rules and certainly will produce an explosion of litigation because of its lack of clarity. The House bill also precludes preemption of state law even if Congress or a federal regulator specifically determines that regulation in the area addressed by the state law would be harmful either to consumers or to the safety and soundness of the banking system.
Regarding debate of the proposal in the Senate, a report from The Hill dated April 23, 2010, stated that “Talks between Democratic and Republican members of the Senate Banking Committee are set to continue throughout the weekend toward a bipartisan agreement on the legislation, though a Monday afternoon deadline looms on the horizon, when Senate Majority Leader Harry Reid (D-Nev.) has scheduled a key procedural vote. But the GOP will continue to hammer away against the legislation in its current form by arguing that Democratic claims about what the bill will do can’t be trusted.”
According to The Birmingham News, however, there is Republican support for the proposed legislation, and a procedural vote is expected on Monday.
Tags: BCFP, Bureau of Consumer Financial Protection, CFPA, Congress, Consumer Financial Protection Agency, Federal Reserve System, Financial Services Oversight Council, Secretary of the Treasury, Senate Banking Committee, Senator Chris Dodd, SourceWatch, The Hill, Timothy Geithner, U.S. Chamber of Commerce