CFA Suggests Debating Mandatory Federal Charters

The Consumer Federation of America is asking why the U.S. Treasury Department is not pushing to replace the entire state-based insurance regulatory system with a federal system.

If the department really wants to promote uniformity in insurance regulation, not simply weaken consumer protection rules, “the appropriate approach is to create a federal regulator with strong consumer protections and not allow insurers to run back to the states when oversight is tougher than they would like,” CFA officials say in a statement about the department’s new financial services reform blueprint report.

In the report, Treasury Department officials recommend giving insurers and producers the option of choosing between being regulated by the states and being regulated by a new federal insurance regulatory agency.

“CFA strongly opposes an optional federal charter for insurance that allows the regulated entity, at its sole discretion, to pick its regulator,” CFA officials say. “This is a prescription for regulatory arbitrage that can only undermine needed consumer protections.”

Treasury officials also have recommended putting responsibility for supervision of market conduct in many different financial services markets, such as the banking, securities and insurance markets, under the jurisdiction of a new, combined market conduct regulator.

“Having, for better or worse, largely erased the lines that separate the banking, insurance, and securities industries, it makes sense to adopt consumer protections based on the nature of products and services offered rather than on archaic industry divisions,” CFA officials say.