Proposed Consumer Financial Protection Agency: Taking Over from the FTC and a Whole Lot More
Several weeks ago, on June 17, 2009, the Obama Administration unveiled details of its proposal to reform financial regulation. The proposal, which has been highly publicized, recommends that Congress and regulatory agencies adopt a comprehensive series of changes that would increase the role of the federal government in almost every aspect of the financial services industry. For example, if adopted as proposed, the proposal would:
- Create several new federal agencies, offices, and councils, including a new Consumer Financial Protection Agency (CFPA), dedicated to policing consumer financial products and services
- Install the Federal Reserve as an overarching regulator for any type of financial firm identified as being systemically significant, giving it authority over certain entities that historically have been subjected to little or no oversight
- Impose heightened consolidated supervisory standards, including capital, liquidity, and prudential requirements, on all large interconnected financial firms
- Drastically scale back the preemption powers of federally chartered financial institutions
- Regulate the markets for over-the-counter (OTC) derivatives and impose requirements on the securitization of debt
- Require Securities and Exchange Commission (SEC) registration of advisers to hedge funds, venture capital funds, and other private investment funds
The first part of the proposal to be fleshed out was the proposed new CFPA through the release by the Administration on June 30 of proposed legislation to establish the agency. The CFPA is designed solely to regulate the offering of consumer financial products and services (except as to instruments regulated by the SEC or CFTC). Its proposed authority is very broad, with a proposed mandate to promulgate, interpret and enforce rules implementing all existing federal consumer financial services and fair lending laws. More importantly, its authority would extend not only to banks, thrifts and credit unions, but also to mortgage lenders, title insurers, money service businesses, marketers and issuers of prepaid cards or stored value, consumer reporting agencies, debt collectors, certain lessors, certain investment advisors, and those that engage in financial data processing. To do that, the proposed legislation transfers all of the authority over these products and services from the federal bank regulatory agencies and the FTC to the CFPA. While the FTC would retain some back up authority (as would the bank regulators) this will be a substantial change in the regulatory landscape.