On December 14, 2012, the House of Representatives Committee on Oversight and Government Reform, Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs issued a scathing staff report entitled: The Consumer Financial Protection Bureau’s Threat to Credit Access in the United States. The report, from Committee Chair Darrell Issa and Subcommittee Chair Patrick McHenry, was a critique of the CFPB and it’s potential effects on restricting access to credit.
The report began by criticizing the regulatory structure and powers granted to the CFPB:
The CFPB, an unelected and unaccountable bureaucracy unlike any other government agency, has been given vast and vague regulatory authority over virtually the entire financial services industry. With its broad and sweeping power to regulate consumer financial products and services, the CFPB has been called the “most powerful agency in American history.” Despite its immense authority, the Bureau lacks the vital external and internal controls that ordinarily govern federal agencies. Even the most basic of constitutional safeguards – the Senate’s advice and consent power – was violated when President Obama installed Richard Cordray as CFPB director during a self-proclaimed “recess” of the Senate in January 2012. These circumstances have created the conditions for the CFPB to become a run-away financial regulator that is poised to add uncertainty and illiquidity to domestic credit markets.
The report focused on the possibility that the White House would seek to influence agency policy, limiting congressional oversight. It also found that despite the CFPB’s mandate, it structure reflected a “weak reliance on economics” and it did not do a standard cost-benefit analysis of policies.
The report also outlined the struggles for small businesses and consumers to access credit under current economic conditions. It found that the current state of the economy already contributed to a lack of access to credit and theorized that the CFPB could exacerbate this problem. The report discussed the Dodd-Frank mandate enabling the CFPB to prevent “unfair, deceptive, or abusive” practices and noted that the term “abusive” was undefined, creating an atmosphere of uncertainty for creditors in determining what services could be deemed illegal by the CFPB. Additionally, the report found that current CFPB proposals, including the rule to regulate international remittance transfers sent by individuals in the United States to consumers overseas and changes in mortgage regulations would cause smaller banks and credit unions to simply stop providing regulated consumer financial services and thus reduce consumer access to financial services.
Given the hostility reflected in the report, the CFPB may face challenges with congressional approval as it implements more policies in 2013.
After Senator Chris Dodd revealed his new financial regulation package on Monday, Ronald Orol of Market Watch reported that House Minority Leader John Boehner told attendees at an American Bankers Association meeting not to "let those little punk staffers take advantage of you and stand up for yourselves." Chairman of the House Committee on Financial Services, Barney Frank, took exception to the term "punk staffers."
In a letter to Boehner, Frank expresses his "disappointment" with "name calling," and urges Boehner to apologize to all staffers on Capital Hill. The letter, in its entirety, reads as follows:
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Today — the first day that many of the key provisions of the Credit CARD Act go into effect — Representative Barney Frank, chair of the Financial Services Committee, issued a press release in which he claims the Act is working and credit card holders are reaping the benefits. In support of the claim, Rep. Frank links to a PDF of a couple of letters from credit card companies. Representative Frank’s press release is reproduced below:
Washington, DC – Today, Financial Services Committee Chairman Barney Frank (D-MA) released the following statement on the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, and commented on the following letters that credit card companies have been sending to their customers as a result of the new law’s implementation.
“These letters indicate that Americans are now seeing the benefits of the CARD Act. It was unfortunately the case that some banks tried to game the system after we passed the bill into law, but their actions provide further evidence of our need for a Consumer Financial Protection Agency. While the House did pass a bill to speed up the implementation date of the CARD Act, there was an inevitable delay in the legislative process and Republican objections in the Senate blocked the bill. Had the CFPA been in existence we could have moved right away to block the banks’ egregious actions.”
In May, President Obama signed into law the Credit CARD Act, historic legislation that will protect consumers from deceptive credit card practices and equip them with the information and rights they need to responsibly manage their credit. Today, most of the key reforms are set to go in to effect, including prohibition of arbitrary interest rate increases and interest charges on debt paid on time (double-cycle billing ban).
For more information, click here.
Representative Barney Frank, chair of the House Financial Services Committee (“FSC”), has issued a memorandum to the members of the FSC addressing certain issues raised by various news publications. The substance of the memorandum is as follows:
Some inaccuracies have appeared in the press about institutions exempted from the reach of the Consumer Financial Protection Agency in the House-passed financial reform bill. For instance, yesterday’s New York Times reported that it “exempted smaller community banks, credit unions, retail merchants …”. Not true. All of those institutions will be subject to all rules issued by the agency with respect to the extension of credit. They also will be subject to agency enforcement. The exemption for smaller financial institutions is only with respect to examination which will continue to be the responsibility of the institutions’ prudential regulators. However, the CFPA will have back-up inspection authority and may independently take enforcement action. And even this exemption is limited to institutions with less than 2% of bank assets.
Importantly, the new agency will also have authority with respect to the now lightly or unregulated institutions such as pay day lenders and check cashers firms which are especially important to lower income families. It also will have authority over independent mortgage brokers and lenders that led the industry in issuing subprime and abusive option ARM mortgages.
Consumer protection has long been a weak link in our system of financial regulation and the meltdown of the subprime mortgage market is only the most dramatic example of the consequences of our failure in this area. The President’s position on closing this gap is of great importance.
Leading consumer protection advocates unanimously support the President. Harvard professor Elizabeth Warren said when the House bill passed, “the banks lost today.” That same day, Travis Plunkett from the Consumer Federation of America said that “The CFPA will allow consumers to shop or take out a loan knowing that there is an agency looking out for their best interests.”
Click here to read the memo as it appears on the FSC’s website.