By Edward B. Kramer, Executive VP, Regulatory Programs
As we all know by now, the House Financial Services Committee voted 39 to 29 on Thursday to approve legislation to create a consumer financial protection agency, a key priority in the Obama administration’s regulatory reform plan.
The bill would remove from the federal banking and thrift agencies their ability to write new consumer protection laws and it will transfer oversight of several major statutes such as the Truth in Lending Act and the Home Mortgage Disclosure Act to the new agency.
The committee approved an amendment that would let prudential regulators keep primary supervision, examination and enforcement of community banks with $10 billion or less of assets. Such institutions, however, would still be subject to rules written by the CFPA, which would also be given backstop enforcement authority.
I believe the end result will be more consumer compliance regulation, not less.
Although community and small to mid-sized banks will be exempt from primary oversight by the CFPA, the impact that will have on the overall regulatory structure will be significant. Let me explain my thinking.
First, the CFPA will write the rules of the game. It will be given the ability to write new consumer protection laws and with oversight of several existing statutes such as the Truth in Lending Act and the Home Mortgage Disclosure Act, you can expect more, not less.
Although the proposed legislation would let prudential regulators keep primary supervision, examination and enforcement of the under $10 billion community banks, such institutions would still be subject to rules written by the consumer agency, which would have a single focus on consumer protection.
Most important, I believe, is that the CFPA will also be given backstop enforcement authority, making it necessary for the prudential regulators to do their job, and do it well. Or else!
