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The Consumer Financial Protection Agency - A Guaranteed Job Killer |
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“Government cannot make man richer, but it can make him poorer.”
- Ludwig von Mises
BACKGROUND
On October 2, 2009, the Department of Labor reported the highest unemployment rate in 26 years—9.8 percent for the month of September. Sadly, many expect the unemployment rate to increase, possibly to 10 percent or higher. The current teen unemployment rate (16-19 years of age) is 25.9 percent—the highest level since the statistic was first measured in 1948. The unemployment rate among black Americans is 15.4 percent—the highest level since 1985. The black American teen unemployment rate is a horrendous 52.4 percent. The unemployment rate among Hispanics and Latinos is 12.7 percent. Lastly, the rate of underemployment, accounting for the unemployed and those who are unable to find adequate work is currently 17 percent. Staggering numbers; yet the Democrats are proceeding with another proposal—the Consumer Financial Protection Agency—that would increase the size and control of government at the expense of the unemployment situation.
Many concerns regarding H.R. 3126 have been expressed by those who would provide the necessary credit to start or expand businesses and by major business trade associations, representing those who provide jobs. On October 8, 2009, the Wall Street Journal reported, “[T]he CFPA monster is likely to damage the availability of consumer credit...Credit card lines have dropped 25% since last year. Credit lines available via credit cards are a critical source of financing for small businesses… Expect more reductions in credit lines as the issuers try to adapt.” But, those concerns are being ignored in the legislation set to be marked up by the Financial Services Committee on October 14, 2009. The concerns are highlighted below.
ISSUES OF CONCERN
Destroys Jobs and Stifles Economic Growth: The U.S. Chamber of Commerce, the Business Roundtable, the Small Business & Entrepreneurship Council and twenty-one other industry trade associations have opposed or expressed serious concerns about the Democrat CFPA proposal. On September 30, 2009, the Chamber, representing over three million businesses, testifying before the Committee on Financial Services stated, “The Chamber opposes the CFPA legislation in its current form because it believes the current bill is the wrong way to enhance consumer protection, and it will have significant and harmful unintended consequences for consumers, for the business community and for the overall economy.” A recent study by former Federal Reserve economist, Thomas Durkin, titled The Impact of the Consumer Financial Protection Agency on Small Business, concluded, “The legal uncertainty of terms like ‘abusive’ that have no legal precedent, and the ability for states to pass laws that conflict with federal requirements would raise the costs of producing consumer credit significantly and chill markets for consumer credit…This would impose collateral damage on informed and sophisticated small business owners who depend on consumer loan products.”
Increases Costs for Businesses and Consumers: On September 3, 2009 in a Huffington Post article, Elizabeth Warren, the main proponent and creator of the CFPA concept wrote, “From history, we have learned that an agency's source of funding is critical to its success. By allowing the Agency to tax lenders directly…Congress can make sure that the CFPA stays well-funded in the years ahead.” Consistent with Warren’s anti-business pro-government admonition, the Frank proposal would provide the CFPA with the authority to impose assessments and other fees on all covered entities. Additionally, the proposal would establish a regulatory floor, leaving States free to adopt more stringent regulations—thus, increasing costs for litigation and compliance. In a recent editorial, the Wall Street Journal stated, “Congress and the Treasury have been forced to peel back their financial reform ambitions…[but] their plan for a new Consumer Financial Protection Agency would still unleash 50 state attorneys general to harass America's banks.” In order to comply, many businesses would be forced to further reduce the size of their work force or increase the cost of their products—meaning many small business consumers reliant on these products would face the same dilemma. On October 8, 2009, the Financial Services Roundtable, representing the nation’s largest financial institutions issued a letter stating, “[I]n its current form, the bill [H.R. 3126] and the discussion draft will have unintended and harmful effects on the very consumers it seeks to protect.”
Restricts Access to Credit: Most providers of credit oppose the creation of the CFPA. Among others, some of the opposition includes the Independent Community Banker’s Association, representing over 5,000 community banks, the American Bankers Association (a majority of members are banks with less than $125 million in assets), and the American Financial Services Association. On September 30, 2009, the ABA testified, “This [CFPA] will undoubtedly cause firms to cut back on the extension of credit and to avoid testing new products and services in the marketplace for fear they will run afoul of future legal standards.”
THE REPUBLICAN PLAN
On July 23, 2009, House Republicans introduced the Consumer Protection and Financial Regulatory Enhancement Act. The legislation is premised on three key principles: ending the bailouts once and for all; restoring market discipline; and protecting the taxpayers and consumers. This means smarter regulation, rather than more regulation. It also means ending the misguided government policies that helped cause and worsen the current financial crisis, while propping up failed financial institutions.
No More Bailouts: The plan would create a new chapter of the bankruptcy code to make it more efficient and better suited for winding down large non-bank financial institutions. Republicans are committed to stopping government from picking winners and losers in the marketplace.
Restoring Market Discipline: The plan would remove the federal government’s seal of approval of credit rating agencies by removing all references to credit rating agencies that appear in federal law. The failure of the credit rating agencies, operating as a cartel and aided by misguided government policies, assisted in creating the current financial crisis. Each of these institutions—Fannie Mae, Freddie Mac and the credit rating agencies—would be required to compete fairly in the marketplace.
Taxpayer Protection: The plan would put an end to the taxpayer subsidies for Fannie Mae and Freddie Mac and gradually privatize them. Fannie Mae and Freddie Mac are two housing government sponsored enterprises that have exposed the taxpayers to potentially trillions of dollars in liabilities and are at the core of the current financial crisis.
Consumer Protection: The plan would streamline and consolidate the functions of four bank regulatory agencies, including consumer protection, into a unified agency. This would make it easier for consumers to seek redress for unfair or deceptive practices, and it would create a clear line of accountability. The plan would also provide regulators, including the Financial Crimes Enforcement Network (FinCEN), with more investigative and enforcement tools, increase civil and criminal penalties, and maximize restitution to victims of fraud. Lastly, the proposal would expand the mission of the Financial Literacy and Education Commission by giving it the authority to direct regulated entities to disclose relevant policies and procedures on their websites.
Monitoring Systemic Risk: The plan would create a board and task it with monitoring the interactions of various sectors of the financial system, identifying risks that could endanger the stability and soundness of the system. The Board would be chaired by the Secretary of the Treasury and comprised of outside experts as well as representatives from the financial regulatory agencies responsible for supervising large, complex firms.
Ensuring Transparency: The plan would ensure transparency and accountability of government by directing the Government Accountability Office to conduct extensive audits of the Federal Reserve. The proposed plan would refocus the Fed on its core mission of conducting monetary policy by relieving it of current regulatory and supervisory responsibilities.
Streamlining Government: The plan would ensure consistent enforcement, accountability and transparency by modernizing the current framework of overlapping and redundant federal financial regulatory agencies and streamlining supervision of deposit-taking entities in one agency while preserving charter choice and the dual banking system. The plan would combine the Office of the Comptroller of the Currency and Office of Thrift Supervision into one agency and shift the supervisory functions of the Federal Reserve and Federal Deposit Insurance Corporation to that agency.
