President Obama, pushing a key part of his overhaul of financial regulations, sent to Congress a draft bill that would create the Consumer Financial Protection Agency, which he said would better protect Americans from unscrupulous practices and make financial products easier to understand.
Under the 152-page bill released Tuesday, the new agency would bring together what the administration called the "fragmented" system of responsibility for consumer protection.
It would improve transparency, simplify financial documents for consumers, examine the operations of previously unregulated financial services and create a level playing field among competitors, making banks and non-banks subject to one set of rules and enforcement practices, the administration said.
"We won't have situations of banks being unable to compete against companies that offer mortgages consumers can't understand," said Michael Barr, the Treasury Department's assistant secretary for financial institutions.
Some Republicans and business groups oppose the idea, saying it would create a new layer of bureaucracy, making regulation more cumbersome, and would be a threat to economic freedom.
"We need smarter regulation, not just more regulation," said Rep. Jeb Hensarling (R-Texas).
Barr countered that the mortgage crisis was fueled by the industry's "bad practices" and the "less supervised, less regulated" nature of the sector. The consumer agency would allow for regulation of mortgages, credit cards, pay-day lending and overdraft fees and would set consistent rules among different kinds of products, he said.
The agency also would consolidate responsibility for consumer issues, Barr said. For example, consumers purchasing homes currently receive two kinds of disclosures: one a truth-in-lending statement required by the Federal Reserve and the other a statement under the Real Estate Settlement Procedures Act, administered by the Department of Housing and Urban Development.
Consolidation would allow for fewer, simpler disclosure forms and would allow regulators to act more quickly, the administration said.
A single agency, responsible for the entire sector, would also deter companies from organizing and reorganizing themselves -- from thrifts to banks and to mortgage companies -- to evade certain types of regulations.
"Under this system you can't escape the appropriate regulation," Barr said.
The Treasury Department also said the consumer agency would establish a "floor, not a ceiling" for state regulatory agencies and would encourage states to have a strong role in financial regulatory enforcement.
The proposal has drawn opposition from some lawmakers who fear the agency would pose a threat to economic liberty and consumer choice.
"The legislation essentially says that when it comes to financial products, if we will only yield our freedoms, if we will only yield our consumer choices, if we will only yield our market-driven innovations to a group of unelected philosopher kings, they will undoubtedly rule us with wisdom and justice. Forgive me, I do not buy it," said Hensarling, the top Republican on a House subcommittee on financial institutions and consumer credit.
Banks and financial services groups also attacked the bill.
"We're for consumer protection, but this is not the most effective way to accomplish that," said Scott Talbott of the Financial Services Roundtable.
Talbott said the group's fundamental objection to the new agency is that it would separate the regulation of banks from the regulation of products, creating a new layer of regulation that would make the system less streamlined. A better solution would be to strengthen the existing regulatory system, he said.
He also said that encouraging tougher enforcement within each state would be burdensome for banks, increase costs and be confusing for consumers, especially those who move from one state to another.
"Instead of complying with one consumer-protection regime, we now have to comply with 51," Talbott said.