The Consumer Financial Protection Agency (CFPA) took center stage before the House Financial Services Committee Wednesday. Last week, committee chair Barney Frank, D-Mass., introduced a discussion draft of CFPA legislation that garnered Republican support by leaving out several of the Obama administration's most controversial proposals.
Specifically, Frank's version eliminated the administration-proposed ‘plain vanilla’ product requirement and the requirement that communications with borrowers be "reasonable." Treasury Secretary Tim Geithner, after admitting that he only briefly reviewed Frank's draft, said last week that he generally supported the changes.
Republicans on the committee have also endorsed the concessions, with at least one lawmaker declaring that Frank's draft is "moving in the right direction."
Several witnesses testifying before Congress yesterday, however, remain opposed to other elements of Frank's draft. Representatives from the U.S. Chamber of Commerce and the American Bankers Association (ABA), for instance, said they believe the draft is flawed because it removes preemption of state and local laws, essentially allowing states to build upon the rules floor set by the CFPA.
Andrew J. Pincus, a partner with Mayer Brown LLP speaking on behalf of the Chamber of Commerce, said such an approach to rulemaking would create inconsistencies and conflicting mandates between state and federal agencies.
The Center for Responsible Lending's president, Michael Calhoun, made the case for why CFPA rules should act only as a floor, saying "preemption was part of the guidance system that drove us to the precipice." Citing state laws in Massachusetts and North Carolina, Calhoun suggested that states lead the way to better regulations.
A Massachusetts rule, which took effect in early 2008, bans compensating brokers for certain loan terms. A North Carolina law similarly bans yield-spread premiums on subprime loans. Both laws are reflected in recent rules proposed by the Federal Reserve. Not allowing states to draft their own consumer protection rules would cause the CFPA to act "without the benefit of lessons learned from these state law pilot projects," Calhoun said.
Others, such as ABA President Edward Yingling criticized the draft because it keeps intact an administration proposal to separate the regulation of products from the regulation of the entities providing the products. "[S]afety and soundness and consumer protection are too intertwined to separate," Yingling testified.