Administration pitches consumer protection overhaul

The Obama administration Tuesday sent legislation to Congress to create a Consumer Financial Protection Agency that would oversee consumer bank and credit products, taking away such power from the banking regulators who have been criticized for failing to prevent abuses in the mortgage and credit card markets.

The 152-page draft bill largely hews to the outline that Treasury Secretary Tim Geithner unveiled this month to overhaul the nation's financial regulatory system, creating an agency modeled on the Consumer Product Safety Commission for many financial products.

"This agency should have strong powers not to just set rules, but also to supervise institutions and to examine institutions and enforce with respect to institutions," said Michael Barr, Treasury assistant secretary for financial institutions.

The agency would have the power to impose fines and refer for criminal prosecution those who engage in unfair, deceptive or abusive acts. It would be able to act when it reasonably concludes the product in question would likely cause "substantial injury" to consumers. But the draft bill would exclude securities products such as mutual funds and keep such enforcement under the SEC, while futures would fall under the jurisdiction of the Commodity Futures Trading Commission.

The draft did not include any language on regulating the property and casualty insurance market, where states have jurisdiction. The federal standards would be a floor where states could enact even tougher measures and state attorneys general could enforce. But the new agency would not be allowed to impose usury limits under the draft bill.

As for mortgage regulation, the agency would have to propose within one year a mortgage disclosure form that would combine requirements under the Truth In Lending and Real Estate Settlement Procedures acts, which banking regulators and HUD have struggled for years to do.

In addition, the agency could ban mandatory arbitration in financial contracts, a win for the trial lawyer lobby, which has been pushing Congress to roll back such contracts that have become more ubiquitous for consumer purchases.

The draft bill would establish a framework under which employees from the Federal Reserve and other banking regulators would be transferred into the agency to ramp up its efforts. But it does not detail how the agency would be funded.

The House Financial Services Committee is slated to mark up its Consumer Financial Protection Agency legislation before the August recess, while the Senate Banking Committee plans to incorporate its bill into a larger overhaul measure this fall.

"While the committee will, of course, exercise its own judgment on the specifics ... it is helpful to have the administration's proposals as well because I believe there is a great deal of common ground between us," said House Financial Services Chairman Barney Frank, D-Mass.

House Republicans are against the proposal, arguing that such enforcement should remain with frontline regulators who know the issue better. "A consumer financial protection agency would be the creation of yet another regulator, with human error encouraged by separating regulatory decisions from the already limited expertise found at prudential regulatory agencies," said House Financial Services Capital Markets Subcommittee ranking member Scott Garrett, R-N.J.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.


When you download a report, your information may be shared with the underwriters of that document.