Business for Shared Prosperity

Washington Business Journal, Dec 21, 2009
By Kent Hoover, Washington Bureau Chief

Legislation creating the Consumer Financial Protection Agency could make credit more expensive and harder to get, opponents of the bill contend.

The CFPA is one of the main pieces of the financial regulatory reform bill that passed the House Dec. 11 on a 223-202 vote. The new agency is designed to protect consumers from unfair financial products and services. It would have the power to set basic standards for financial products, ban practices such as teaser rates on loans, and require easy-to-understand contracts for credit cards and mortgages.

Supporters of the agency contend it is needed because banking regulators failed to rein in abusive practices by the financial industry. Small businesses, as well as consumers, would benefit from the agency, said Margot Dorfman, CEO of the U.S. Women's Chamber of Commerce.

"Business owners and consumers need the security of knowing that the costs and risks of financial products, services and lending are fully and fairly disclosed," Dorfman said. "We need a strong, independent federal agency to promote financial product safety and establish clear, enforceable rules of the road."

The U.S. Chamber of Commerce, however, strongly opposes the CFPA. It contends the agency would add an unnecessary layer of regulation on banks, reduce choices of financial products, stifle innovation and make credit even harder to get. The chamber and its banking industry allies hope the close House vote will improve their chances of blocking the agency in the Senate, which will take up the bill next year.

President Barack Obama, however, strongly supports the CFPA. At a Dec. 14 meeting at the White House, he personally urged the CEOs of the nation's largest banks to stop lobbying against creation of the agency.

"If they wish to fight common-sense consumer protections, that's a fight I'm more than willing to have," Obama said after the meeting.

But David Hirschmann, president and CEO of the chamber's Center for Capital Markets Competitiveness, said the CFPA provisions were "written with far-too-broad definitions and vague regulatory standards, exposing businesses to excessive regulation and potential litigation."

Edward Yingling, president and CEO of the American Bankers Association, said the CFPA "could make it very difficult for banks to effectively serve their consumer and business customers."

Credit cards harder to get

- Ron Glancz, a Washington, D.C., attorney who chairs law firm Venable's financial services group, said the CFPA would increase regulatory costs for banks, and these costs would be passed down to borrowers.

"At the end of the day, it's the customer who pays for it," he said.

Banks also would further tighten credit availability as a result of uncertainty over what rules the new agency would issue, said Richard Fischer, a partner in the financial services group at Morrison & Foerster's Washington, D.C. office.

The number of credit card accounts has dropped about 20 percent from 2008's levels because of recently enacted legislation regulating fees and other credit card terms, and the rules implementing this legislation haven't gone into effect yet, he said. He predicts uncertainty over CFPA rules would cause banks to further reduce credit card availability.

That would hurt small businesses since many of them "live on credit cards," he said.

Small companies win audit relief

Besides creating the CFPA, the Wall Street Reform and Consumer Protection Act (H.R. 4173) aims to prevent the type of systemwide collapse that Wall Street faced a year ago. An interagency council would identify financial firms and activities that could pose a systemic risk to the financial system, and subject them to increased oversight and regulation. The bill also would establish a process for unwinding one of these firms if it does collapse.

While most of the bill deals with Wall Street, the House included some breaks for Main Street as well. For example, the bill includes an amendment that exempts public companies with market values of less than $75 million from the Sarbanes-Oxley Act's requirement for an outside audit of their internal controls. Small public companies claim these audits would be too expensive.

Also, community banks with less than $10 billion in assets would not be subject to CFPA examinations, unlike larger banks. Their existing banking regulators would continue to monitor their compliance with consumer protection rules, as well as their safety and soundness.

"Community banks have always made and continue to make consumer protection a priority, and they did not perpetrate the abuses that caused this crisis," said R. Michael Menzies, president and CEO of Easton Bank and Trust Co. in Easton, Md., and chairman of the Independent Community Bankers of America. "Therefore, they should not have to pay the price for others' ill deeds."

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Wall Street Reform and Consumer Protection Act

Status: Passed House on 223-202 vote Dec. 11; Senate will consider similar bill next year
Highlights:
-Creates Consumer Financial Protection Agency to protect Americans from unfair and abusive financial products and services
-Creates council of regulators to identify and further regulate firms whose collapse would put the entire financial system at risk
-Establishes an orderly process for shutting down large, failing financial institutions
-Subjects hedge funds and over-the-counter derivatives to regulation
-Gives shareholders an advisory vote on executive compensation and enables regulators to ban inappropriate or risky compensation practices
SSource: H.R. 4173

Copyright 2009 American City Business Journals
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