"There's a clear cause and effect here that is as neat and predictable as a law of physics: As government expands, liberty contracts."
-President Ronald Reagan
On September 25, 2009, Rep. Barney Frank (D-MA) distributed a modified version of H.R. 3126, the Consumer Financial Protection Agency Act. The goal of the new proposal was to address the original proposal's shortcomings-the limitation to credit products, excessive compliance and litigation costs, the creation of a powerful and intrusive new government bureaucracy with broad jurisdiction, and the undermining of safe and sound regulation. However, the changes fall far short of completing the goal.
ISSUES OF CONCERN
Concentrates Power: Like the original CFPA proposal, the modified proposal would grant exclusive rulemaking and examination authority for the consumer protection provisions of at least 13 existing federal consumer protection laws. In a July 20, 2009 letter sent to the Chairman and Ranking Member of the Financial Services Committee, twenty-three trade associations, including the U.S. Chamber of Commerce and the Business Roundtable, expressed concern about the power of the proposed agency. The letter stated, "The scope of the legislation is very broad, granting unprecedented power and authority to a new agency with very few checks on that agency's power."
Expands Government's Jurisdiction: The CFPA would have jurisdiction over ANY financial activity, product or service to be used by a consumer. Note: The definition of "any activity" is to be determined by the agency, which gives it the authority to expand its jurisdiction at will and without congressional approval. The term would include, among other things, the following activities: leases, financial custodial services, investment advice, and any other activity the Director defines by regulation. The proposal's definition of a "covered person" would give the CFPA jurisdiction over anyone who engages "directly or indirectly in a financial activity" or "provides a material service" to anyone who engages in a financial activity. On September 30, 2009, the U.S. Chamber of Commerce, the world's largest business federation, testified, "The scope of H.R. 3126 as introduced is sweeping, giving the CFPA authority to regulate businesses and professionals far beyond traditional consumer finance...Unfortunately, the revised bill does not solve the problems created by the underlying bill's expansive approach."
Jeopardizes Safety and Soundness Regulation: The CFPA would separate the regulation of protecting consumers from ensuring safety and soundness, creating a conflict between numerous existing agencies. Agencies need the ability to consider safety and soundness, consumer protection and product approval together to ensure that a balance is achieved and neither responsibility is jeopardized. On September 30, 2009, a representative of the Independent Community Bankers of America testified, "[A]llowing consumer protection to trump safety and soundness is a dangerous precedent. Bank regulators have expertise in balancing safe and sound operation with the need to provide consumers information..."
Impedes Innovation and Kills Jobs: While the modified proposal eliminates the explicit requirement to offer "plain vanilla" products, the CFPA would retain broad authority to set sales practices, prevent "unfair, deceptive and abusive" behavior, and impose fair dealing duties. This would guarantee that firms meet the demands of the bureaucrats, rather than consumers. Businesses would have limited credit products to choose from which would limit their options for growth. Again, testimony from the U.S. Chamber of Commerce 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."
Increases the Costs of Credit: The regulations issued by the CFPA would establish a regulatory floor, leaving States free to adopt more stringent regulations. State attorneys general would be authorized to bring actions in federal or State court to enforce applicable State and federal laws, including CFPA regulations. On September 23, 2009, John Dugan, Comptroller of the Currency stated, "[T]he rules would not be uniform; that is, because the Proposal authorizes States to adopt different rules, there could be fifty different standards that apply to providers of a particular product or service, including national banks...[T]hese differences would needlessly raise the cost of compliance, and therefore the cost of consumer products and services."