Frank Set to Scale Back Plans For Consumer Financial Agency

By Brady Dennis
Washington Post Staff Writer
Wednesday, September 23, 2009

Rep. Barney Frank said he's prepared to make key changes to the Obama administration's proposed new consumer financial protection agency in an effort to head off some the main criticisms about its power and scope.

Frank (D-Mass.) wrote to members of the House Financial Services Committee, which he leads, that he intends to exempt certain non-financial businesses from oversight by the new agency, which will have authority over a wide range of financial products such as credit cards and mortgages.

"That means that merchants and retailers can continue to give their customers tabs and layaway plans without becoming subject to a new layer of regulation," Frank wrote. He added that doctors and other businesses that bill customers after a service is provided, including telephone and cable companies, also will be excluded, as will auto dealers, lawyers, providers of certain retirement and pension plans, accountants, and real estate brokers.

Frank also said he plans to fund the agency without "placing an additional burden on financial institutions" by having the Federal Reserve fund the proposed agency "at a level that reflects amounts the banking agencies currently pay for consumer compliance." Nonbanks such as mortgage companies, Frank wrote, still would be subject to assessments, and "neither small nor large banks will pay for the examination and supervision of non-banks."

He said the new regulator would be run by a single director and advised by an oversight board made up of officials from other federal agencies, such as the Federal Trade Commission and the Department of Housing and Urban Development. It also would no longer have the power to require financial institutions to offer "plain vanilla" products and services or to approve or alter business plans.

Frank's concessions attempt to address concerns from fellow lawmakers, as well as the most fervent complaints from financial and business interests, who have fought the creation of a new regulator. Critics say the proposed agency would add another layer of regulation, increase costs, stifle innovation and curtail choices for consumers. The U.S. Chamber of Commerce has undertaken an aggressive and expensive "Stop the CFPA" campaign that asserts that even local butchers and bakers would be within the new agency's reach. Frank's proposals seem intended to undercut such arguments and clarify the administration's initial blueprint.

Even with the changes, some opponents of the new agency aren't about to embrace its existence.

"We are pleased that a number of the issues we raised have been addressed," said Edward L. Yingling, president of the American Bankers Association. "At the same time, there are some very significant issues that still need to be addressed."

Among those issues, Yingling said, is that under the current proposal, states could go beyond the federal guidelines for consumer protection set by the new agency, an approach that financial firms say could lead to burdensome and conflicting regulation. A separate agency for consumer protection "still will have conflicts with the safety and soundness regulators," Yingling said. He and others also argue that the new regulator would be too powerful. "The agency still will have very, very broad, legislative-like powers. It can basically do anything it wants," he said. "We think that's a problem."

Also Tuesday, at an event outlining the chamber's objections to the CFPA, David Hirschmann, head of the organization's Center for Capital Markets, described the proposed new agency as an "overly broad, overly sweeping, big government solution."

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