While the universe of financial services regulation is in flux, one key component, a proposed consumer financial protection agency (CFPA), is taking shape. The CFPA will have a mandate to set rules governing all financial institutions,
Seeking to ease passage of CFPA legislation,
In a letter to fellow committee members obtained by Insurance Networking News, Frank said the CFPA will be run by a single Director, who will be advised by a Consumer Financial Protection Oversight Board. To avoid burdening the firms it regulates, it will derive funding from the Federal Reserve.
Bowing to political pressure, the Frank proposal will exempt merchants, retailers and other non-financial businesses from the oversight of CFPA. In another concession to critics of the Obama plan, Frank dropped a requirement that financial institutions be required to offer “plain vanilla” products and services.
However, any proposed authority to approve products and services rankles many, including the life insurance industry. In testimony before the committee in June, Gary Hughes, EVP and general counsel of the
“Because life insurance products are already regulated by the states, there is no justification for the added scrutiny of an agency like the CFPA,” he said. “Subjecting life insurance products to the jurisdiction of the CFPA and thus disaggregating important aspects of life insurance solvency regulation would run the very real risk of increasing, not decreasing, systemic risk for insurance and weakening, not strengthening, the protection of life insurance consumers.”
Despite these concerns, Frank made it clear that all non-bank financial institutions that provide consumer financial products and services will be required to register with CFPA. Similarly, in his testimony today, Treasury Secretary Timothy Geithner stressed the need for a wide-ranging legislator with resolution authority over financial institutions of all stripes.
“We must act to correct the regulatory problems that have left our financial system so fragile and prone to further trouble that Americans come to distrust it as a reliable repository for their savings and a stable source of the credit they need to conduct their lives and build their businesses,” he said. “We will give the government the capacity, as it has now for banks and thrifts, to dismember or unwind major financial firms in an orderly fashion with less collateral damage to the system.”
Elsewhere, Geithner sought to blunt criticism that the CFPA could be construed as an implicit bailout fund for companies deemed too big to fail. “Crucially under our proposals, there will be no fixed list of “Tier1 financial holding companies (FHCs), and identification of a firm as a Tier1 FHC will not convey a government subsidy—it will be no guarantee of extraordinary governmental assistance in the event of financial distress,” he said.
Both Geithner and Frank indicated they wanted CFPA legislation to proceed on a fast track. However, it remains to be seen how Frank’s vision of a CFPA reconciles with that of Senate Banking Committee Chairman Christopher Dodd (D.- Conn.), who recently floated the notion of a single, unified bank regulator.
“Time is the enemy of reform,” Geithner said. “As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency.”
