Consumer Financial Protection Bureau closer to reality
House and Senate negotiators closed in on an agreement Tuesday that would create a new consumer protection agency, one of the main components of the sweeping rewrite of financial industry rules.
In response to furious lobbying by the nation’s car dealers, lawmakers moved closer to a compromise that would largely exempt that industry from the agency’s oversight. Legislators also agreed to house the independent agency at the Federal Reserve.
The controversial Consumer Financial Protection Bureau is the centerpiece of the financial overhaul legislation that President Obama called for last year.
A joint conference committee is scrambling to reconcile differences in versions passed by the House and Senate so Obama can present the final version to world leaders at a major economic summit in Toronto this weekend.
Once the bills are harmonized, lawmakers are expected to approve final legislation next week before leaving for their July 4 recess.
The Obama administration and key congressional Democrats proposed the new consumer protection agency to address the failure of federal banking regulators to stop consumer abuses, particularly predatory subprime mortgage lending, a leading cause of the financial crisis.
The new agency would take away most consumer protection power from banking regulators, including the Federal Reserve’s authority to write rules governing mortgages and other loans.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said the regulators for years have neglected consumer protection, leaving it to Congress to try to catch up with such abusive financial practices as excessive credit card fees.
“We believe very strongly that when consumer protection is the afterthought of the bank regulators, it is not done very well,” Frank said.
Republicans, the financial industry and many business groups strongly oppose the creation of an agency as an unwarranted expansion of government control over the economy. They warned it would drive up the costs of credit for consumers and endanger the health of banks.
Rep. Jeb Hensarling (R- Texas) said the new agency’s director, appointed by the president, would amount to “an unelected credit czar” with power to “ban and ration” credit products that some consumers might need to afford a house or a car.
Given concerns about the new agency’s power, various businesses lobbied hard to be exempted from its oversight. The House and the Senate agreed to exempt banks with less than $10 billion in assets from consumer protection examinations by the agency, though they still would be subject to its rules.
Politically influential auto dealers persuaded the House to exempt them from oversight by the agency as long as they are not lending their own money to consumers. Dealers argued that most of them act only as intermediaries, arranging loans through automaker finance companies such as GMAC, banks and credit unions. They contend that abuses are rare and covered by existing laws overseen by the Federal Trade Commission and state attorneys general.
But the Obama administration opposed the exemption.
Military officials made a public plea to senators to make auto dealers accountable to the new agency, saying many service members complain about getting ripped off on car loans. Consumer advocates also fought aggressively against the exemption, and the Senate did not include one in its legislation.
The House conference committee members pushed Tuesday for the final bill to contain the exemption. Senators countered with a proposal that would largely exempt the dealers.
The Senate proposal would keep oversight of unfair and deceptive practices by auto dealers under the Federal Trade Commission with expedited rule-writing power for that industry. Auto dealers would have to comply with truth in lending rules issued by the consumer agency unless the Federal Reserve determined that they were “inappropriate” and publicly explained why.
“It’s better than a complete and total exemption, but it’s unbelievably convoluted,” said Travis Plunkett, legislative director for the Consumer Federation of America.
Despite the Fed’s high-profile failures on consumer protection — it waited 14 years to ban abusive mortgages after Congress gave it the authority in 1984 — the Senate decided to locate the consumer agency at the Federal Reserve.
Republicans were concerned about creating a separate new agency, and Democrats agreed to create a bureau in the Fed with the same basic powers as proposed by the Obama administration and approved by the House. The Fed would have no control over the agency or its budget.
House conference committee members agreed to place the new agency at the Fed, which Frank said would mean little more than that its mail would be delivered there.