In a move sure to delight bankers, the top Republican on the House Financial Services Committee on Wednesday called the Obama administration's plan for a new consumer financial protection agency "fundamentally flawed."
Representative Spencer Bachus of Alabama said the new agency -- first proposed by Harvard Law professor and current TARP watchdog Elizabeth Warren -- would "create more confusion for consumers...and less consumer protection." At a congressional hearing on financial regulatory reform, Bachus instead championed a competing bill he introduced in July.
The Bachus bill calls for a new consumer protection unit, within a new bank overseer, that would establish a "toll-free hotline and a website for consumers to contact regarding inquiries or complaints" and that would review existing regulations at least once every seven years. Its proposals for new consumer-protection rules would also be subject to approval by bank regulators.
The administration's plan calls for a new stand-alone agency that would be able to write and enforce consumer-protection regulations; ban unfair credit practices; audit financial institutions for compliance; and enforce its measures through fines and penalties.
At this point, even free-market champion and former Fed Chairman Alan Greenspan wants an independent regulator whose primary objective is consumer protection.
House Financial Services Committee Chairman Barney Frank (D-Mass.) has been paring down the White House version of the CFPA. Although some consumer advocates criticized the lessened protections in a conference call with reporters Tuesday, none argued that the agency wouldn't be worth creating in that form.
"It should be clear to everyone by now that our current regulatory structure is incapable of standing up for the consumer against the powerful financial services industry and its allies," said Nancy Zirkin, the executive vice president of the Leadership Conference for Civil Rights, which comprises some 200 civil and human rights organizations. "CFPA will make sure that consumers have a choice of responsible financial products, and the tools needed to make the best choices for them and their families. The CFPA will also have an important role to play in protecting the civil rights of consumers, and we're grateful to Chairman Frank for seeing the need for that."
A group of 74 professors with expertise in consumer and banking law wrote Frank and other key Congressional committee chairmen to endorse the creation of the CFPA. One of the signatories told the Huffington Post he was disappointed by the changes made last week, but "a watered down approach is better than nothing."
Jeff Muskus contributed to this report.